Integrating LiveChat, ChatBot, And HelpDesk Will Attract Larger US Clients

Key Takeaways

• Developing a unified suite could boost cross-sell opportunities, attracting larger clients and driving revenue growth through comprehensive solutions.
  
• Strengthening U.S. sales and focusing on high-value deals may lead to increased high-value transactions and boost future revenue.
  
• High customer churn and weak acquisition, along with competitive pressures and pricing challenges, threaten Text's future revenue stability and competitive positioning.

Catalysts

Develops and distributes online text communication software for businesses worldwide.

• Text is in the process of developing a suite offering, which aims to integrate their various software products like LiveChat, ChatBot, and HelpDesk into a unified solution. This has the potential to drive revenue growth by increasing product cross-sell and upsell opportunities among existing customers and attracting larger clients who prefer comprehensive solutions.
  
• There is an emphasis on building infrastructure and obtaining SOC 2 certification, which could improve product quality and appeal to larger customers in the U.S. market. This could lead to increased revenue and better earnings as larger clients usually mean higher value contracts.
  
• Despite a decline in the number of customers, monthly recurring revenues (MRR) are rising due to successful upselling strategies and increased average revenue per license (ARPL). This indicates a potential increase in net margins and earnings through a stronger focus on existing customer monetization.
  
• Text has announced strengthening its sales department, particularly focusing on the U.S. market and larger deals. This strategic shift is likely to lead to an increase in high-value sales transactions, impacting revenue positively in future quarters.
  
• The introduction of new products such as Steam Chat and various automation features can enhance Text's product ecosystem, potentially driving higher customer retention and new customer acquisition, contributing positively to revenue and earnings growth.

Text Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Text's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.2% today to 45.6% in 3 years time.
• Analysts expect earnings to reach PLN 169.1 million (and earnings per share of PLN 7.32) by about February 2028, up from PLN 168.3 million 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 14.1x on those 2028 earnings, up from 8.9x today. This future PE is lower than the current PE for the GB Software industry at 18.4x.
• 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 10.1%, as per the Simply Wall St company report.

Text Future Earnings Per Share Growth

Risks

• A significant decline in LiveChat customers due to high customer churn and weak new customer acquisition, particularly in December, could negatively impact future revenues.
  
• The lower share of payments from annual subscriptions and a 6.2% decline in quarterly payments compared to the previous quarter may lead to revenue volatility and reduced cash flow.
  
• Concerns about the sustainability of current MRR growth since the growth is primarily driven by upselling existing customers while the total number of customers continues to decline, which could affect long-term revenue stability.
  
• The introduction of a suite offering is still in its early stages, which may delay potential revenue increases from cross-selling opportunities.
  
• Rising competition and pricing pressures from larger suites offered by competitors like HubSpot could lead to margin compression and reduced competitive positioning if Text does not adapt its pricing strategy or enhance its value proposition.

Valuation

• The analysts have a consensus price target of PLN71.56 for Text 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 PLN85.1, and the most bearish reporting a price target of just PLN56.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN370.6 million, earnings will come to PLN169.1 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of PLN58.4, the analyst price target of PLN71.56 is 18.4% 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.