Hybrid Analytics Will Serve Finance And Healthcare Markets

Key Takeaways

• Strategic focus on regulated industries and hybrid solutions positions Exasol for niche market growth while leveraging data repatriation trends for increased revenue.
  
• Cost-efficient strategies and new AI capabilities support profitability and competitive advantage, enhancing scalability and ARR growth in target regions.
  
• Strategic focus on on-premise solutions may limit growth in cloud-native markets, with potential impacts from high churn rates and reliance on specific verticals.

Catalysts

Develops database for analytics and data warehousing in Germany, Austria, Switzerland, Great Britain, North America, and internationally.

• Exasol's strategic focus on on-premise and hybrid data analytics solutions for industries with strong regulatory requirements, such as finance and healthcare, positions the company for growth in a niche market. This focus is expected to drive revenue growth by capturing business from sectors less likely to fully adopt cloud solutions.
  
• Successful execution of a cost-efficient operational strategy has led to EBITDA profitability for the first time, with expectations to further increase profitability in 2025. This financial turnaround suggests improved net margins and earnings stability.
  
• Exasol is capitalizing on market trends such as data repatriation, where companies move workloads from cloud back to on-premise solutions for cost efficiency. This trend can potentially drive increased ARR growth from organizations seeking lower computing costs, impacting revenue positively.
  
• Strengthening partnerships and focused customer profiles in target verticals are expected to enhance marketing and sales efficiency, contributing to revenue growth. The company's sharpened focus on high-potential markets in regions like DACH, Nordics, U.K., and U.S. financial sectors aims to improve net ARR growth rates.
  
• Introduction of AI capabilities and GPU support for data analytics within Exasol's product offerings is expected to provide competitive advantage and attract more business, potentially increasing revenue and enhancing the scalability of their analytics engine.

Exasol Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exasol's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 10.4% in 3 years time.
• Analysts expect earnings to reach €5.2 million (and earnings per share of €0.19) by about May 2028, up from €229.3 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, down from 377.9x today. This future PE is lower than the current PE for the DE Software industry at 34.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.96%, as per the Simply Wall St company report.

Exasol Future Earnings Per Share Growth

Risks

• The strategic focus on on-premise and hybrid solutions might limit Exasol's growth opportunities in the rapidly expanding cloud-native market, potentially impacting its future revenue growth.
  
• High churn rates in non-focus verticals and the expected departure of a large retail customer could negatively affect ARR and revenue stability.
  
• The limited growth potential in the global on-premise market, projected to grow only at a 2.7% CAGR, might restrict Exasol's ability to achieve double-digit revenue growth in the long term.
  
• Relying heavily on a specific set of focus verticals (such as finance and healthcare) increases exposure to industry-specific economic or regulatory shifts, which could adversely affect revenue diversification.
  
• The need for continued investment in R&D to stay competitive in AI and advanced analytics, without increasing the overall cost base, could constrain earnings if not managed effectively.

Valuation

• The analysts have a consensus price target of €5.1 for Exasol 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 €6.2, and the most bearish reporting a price target of just €4.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €50.2 million, earnings will come to €5.2 million, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €3.26, the analyst price target of €5.1 is 36.1% higher.
  
• 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.