Integration With 1E Will Open Cross-Selling Opportunities In AI-driven Digital Transformation Solutions

Key Takeaways

• The acquisition of 1E enhances cross-selling, leveraging customer bases for increased revenue and market expansion.
  
• AI-driven solutions and enterprise focus enhance margins and profitability, supported by disciplined cost management and strategic synergies.
  
• Dependency on large enterprise deals and successful integration of 1E are crucial for revenue stability, amidst macroeconomic challenges and rising interest expenses.

Catalysts

Develops and distributes remote connectivity solutions worldwide.

• The acquisition of 1E and its integration into TeamViewer's operations are expected to open cross-selling opportunities, allowing both companies to leverage each other's customer bases, leading to increased revenue growth.
  
• The focus on developing and integrating AI-driven solutions, such as autonomous IT solutions and enhanced endpoint management, is anticipated to support higher net margins through improved efficiency and automation in service delivery.
  
• The anticipated blend of 1E and TeamViewer's products aligns with the growing demand for digital transformation solutions, positioning the company to capitalize on market trends and expand its total addressable market, which can drive future revenue growth.
  
• The shift in revenue mix towards more enterprise customers, with an expectation that Enterprise will account for over 40% of revenue by 2028, could contribute to higher overall profitability due to larger and higher-margin contracts.
  
• Disciplined cost management, complemented by the strategic setup to benefit from anticipated synergies with 1E, particularly in sales and marketing, should drive improvements in operating leverage and earnings.

TeamViewer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TeamViewer's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.3% today to 19.3% in 3 years time.
• Analysts expect earnings to reach €179.6 million (and earnings per share of €1.13) by about April 2028, up from €123.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €209.3 million in earnings, and the most bearish expecting €160 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 16.3x today. This future PE is lower than the current PE for the DE Software industry at 26.5x.
• Analysts expect the number of shares outstanding to decline by 2.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

TeamViewer Future Earnings Per Share Growth

Risks

• The macroeconomic environment remains challenging, with delayed procurement processes and uncertainties which could impact revenue growth prospects, especially in less stable regions.
  
• TeamViewer's high dependence on large Enterprise deals for revenue growth may lead to volatility in revenue recognition and can be adversely impacted if such deals do not close as anticipated.
  
• The integration of 1E is expected to generate revenue synergies, but any delays or difficulties in successful integration could impact the projected revenue and profitability targets in the mid-to-long term.
  
• The company's enterprise customer base growth could face headwinds if the expected upsell and cross-sell opportunities from existing SMB customers into Enterprise do not materialize as planned, affecting ARR and revenue growth.
  
• Rising interest expenses associated with increased financial liabilities from the 1E acquisition could place pressure on net margins and earnings if not managed alongside expected revenue synergies.

Valuation

• The analysts have a consensus price target of €15.583 for TeamViewer 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 €20.0, and the most bearish reporting a price target of just €13.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €932.0 million, earnings will come to €179.6 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 6.4%.
• Given the current share price of €12.56, the analyst price target of €15.58 is 19.4% 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.