NinjaOne's Acquisition Will Strengthen Future Financial Stability

Key Takeaways

• Strong user growth and partnerships drive recurring revenue, robust earnings, cost optimization, and higher margins, reflecting efficient and profitable operations.
  
• Potential acquisition by NinjaOne signifies market recognition of Dropsuite's growth potential and could enhance stock value and earnings.
  
• Uncertainty from the NinjaOne deal, along with operational distractions and limited negotiating flexibility, could affect Dropsuite's revenue, investor confidence, and future shareholder value.

Catalysts

Operates a cloud-based software platform worldwide.

• Dropsuite's recent growth in paid users, nearing the 2 million mark, suggests strong demand for its services. This user growth is expected to drive future increases in recurring revenue and earnings.
  
• The company's expansion in ARR, particularly with a 9% constant currency growth in the latest quarter and 37% year-on-year growth, indicates potential for significant revenue increases and robust earnings growth.
  
• Dropsuite's strategic partnerships, including the introduction of the Bring Your Own Storage product, aid in optimizing costs and improving margins, which could lead to higher net margins in the future.
  
• The proposed acquisition by NinjaOne at a premium share price highlights the market's recognition of Dropsuite's potential, which could lead to revaluation and increased stock value, impacting earnings positively.
  
• Dropsuite's approach of maintaining stable churn rates and continuing profitable ARR growth with healthy gross margins emphasizes efficient operations, which are crucial for sustained revenue growth and improved net margins.

Dropsuite Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dropsuite's revenue will grow by 27.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 9.3% in 3 years time.
• Analysts expect earnings to reach A$7.9 million (and earnings per share of A$0.11) by about April 2028, up from A$829.0 thousand today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$12.9 million in earnings, and the most bearish expecting A$2.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.3x on those 2028 earnings, down from 491.6x today. This future PE is lower than the current PE for the AU Software industry at 60.9x.
• Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Dropsuite Future Earnings Per Share Growth

Risks

• The slight decrease in ARPU (average revenue per user) due to a shift in product mix and the introduction of Bring Your Own Storage could impact future revenue growth if this trend continues.
  
• The Scheme Implementation Deed with NinjaOne introduces uncertainty; while the deal is all cash and at a premium, it is subject to regulatory approval and could face delays or failures in execution, potentially affecting investor confidence and financial stability in the short term.
  
• The company has not run an open sale process, which might have limited their access to potentially better offers, impacting the potential maximum value realization for shareholders and possibly affecting future earnings if alternatives were to provide higher returns.
  
• Potential disruptions and distractions from the takeover process could impact Dropsuite's operational efficiency and partner ecosystem, potentially affecting revenue growth and net margins if the process diverts focus from core operations.
  
• The non-solicitation clause limits Dropsuite's ability to actively seek other offers, which may impact its negotiating position and future valuation, potentially affecting long-term shareholder value and strategic financial outcomes.

Valuation

• The analysts have a consensus price target of A$5.433 for Dropsuite based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$5.9, and the most bearish reporting a price target of just A$4.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$85.5 million, earnings will come to A$7.9 million, and it would be trading on a PE ratio of 60.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of A$5.8, the analyst price target of A$5.43 is 6.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.