Child Online Safety Tailwinds Will Drive Steady Earnings Momentum Over The Long Term

Catalysts

About Qoria

Qoria provides safety and analytics software that helps schools and families protect children online while improving digital learning outcomes.

What are the underlying business or industry changes driving this perspective?

• Although the global push for stronger child online safety tools is expanding Qoria's addressable market, the company may struggle to keep subscription growth in line with this rising baseline as competitors intensify and acquisition channels become more expensive over time, which could cap long term revenue growth.
• While Qoria is benefiting from the structural shift of schools toward data driven learning and wellbeing platforms, the complexity and duration of large district and government procurements can delay platform unification and cross sell plans, limiting the pace of ARR expansion and slowing operating leverage improvements.
• Despite rapid consumer uptake of Qustodio and efficient customer acquisition, elevated churn in a discretionary consumer subscription category and reliance on retail peaks such as back to school and holiday periods could constrain average customer lifetime value, putting pressure on net margins if marketing spend must keep rising to sustain growth.
• Although Qoria is leveraging higher U.S. dollar denominated revenue as education technology spend grows in North America, currency movements and regional mix shifts introduce volatility into reported results, which may dampen earnings growth even if underlying demand remains resilient.
• While operating efficiencies in hardware deployment and fixed cost discipline are currently supporting margin expansion, the need for ongoing product innovation in AI based monitoring and multi geography compliance could increase development and staffing costs, moderating future EBITDA margin gains as the business scales.

Assumptions

This narrative explores a more pessimistic perspective on Qoria compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Qoria's revenue will grow by 20.9% annually over the next 3 years.
• The bearish analysts are not forecasting that Qoria will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Qoria's profit margin will increase from -30.5% to the average AU Software industry of 11.4% in 3 years.
• If Qoria's profit margin were to converge on the industry average, you could expect earnings to reach A$23.7 million (and earnings per share of A$0.02) by about December 2028, up from A$-36.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$36.0 million in earnings, and the most bearish expecting A$-26.1 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 47.2x on those 2028 earnings, up from -21.5x today. This future PE is greater than the current PE for the AU Software industry at 37.8x.
• The bearish analysts expect the number of shares outstanding to grow by 2.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is delivering accelerating growth in key metrics such as cash collections up 23 percent year on year, ARR growing around 25 percent and record pipelines in K 12. If this is sustained, it could drive earnings and valuation higher rather than keeping the share price flat, by expanding revenue and operating leverage.
• The Qustodio consumer segment is scaling rapidly, with ARR growth of roughly 30 to 33 percent and marketing that recoups customer acquisition costs upfront, while churn has been structurally reduced from about 38 percent to under 30 percent. This materially improves customer lifetime value and could lift long term earnings and net margins.
• Structural improvements in operating efficiency, including hardware cost reductions, fixed costs growing at only 6 to 8 percent compared to top line growth above 20 percent and staff costs growing well below revenue, are increasing operating leverage. This can compound profit growth and support a higher share price through rising EBITDA and net income.
• The strategy to deepen cross sell and upsell in K 12, with cross sell expected to exceed 30 percent of new business, larger strategic account coverage in the U.S., and a unified platform rollout in the U.K., positions the company to extract more value from its installed base over time. This may drive faster ARR and revenue growth than currently implied by a flat share price view.
• Growing exposure to U.S. dollar denominated revenue and international consumer demand across 11 languages, supported by diversified marketing channels and B2B2C partnerships, provides a long term secular tailwind that can enhance revenue resilience and margin expansion. This may lead to a rerating of the stock rather than a stagnant valuation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Qoria is A$0.61, which represents up to two standard deviations below the consensus price target of A$0.9. This valuation is based on what can be assumed as the expectations of Qoria's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.1, and the most bearish reporting a price target of just A$0.61.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be A$208.5 million, earnings will come to A$23.7 million, and it would be trading on a PE ratio of 47.2x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$0.57, the analyst price target of A$0.61 is 5.7% higher. 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.