AI Tools And International Expansion Will Improve Platform Efficiency

Key Takeaways

• AI-driven tools and new features may enhance Oneflow's platform, boosting adoption and revenue growth while increasing customer value and sales.
  
• International expansion and operational efficiency improvements could drive overall revenue growth and profitability, despite churn reduction challenges with smaller clients.
  
• Challenges in revenue growth due to high churn and sluggish market sentiment, alongside operational risks and dependence on small companies, could impact profitability.

Catalysts

A software company, develops, sells, and implements digital contract management and automation systems in Sweden, Norway, and internationally.

• Implementation of AI-driven tools like AI Review, AI Insight, and AI Assist will significantly enhance the functionality and efficiency of Oneflow’s platform, potentially driving increased adoption and revenue growth.
  
• Strategic expansion into international markets such as the UK, France, and the Netherlands is expected to continue propelling net sales outside of Sweden, contributing to overall revenue growth.
  
• Improvements in operational efficiency and go-to-market strategies aim to do more with less, which could enhance net margins and drive Oneflow towards profitability.
  
• Reducing churn by focusing on customer retention efforts for small companies that contribute minimally to ARR could improve net retention rates, thereby positively impacting total ARR and future earnings.
  
• The launch of additional features and add-on products is anticipated to increase the average customer value, subsequently driving up net sales and contributing to better earnings performance.

Oneflow Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oneflow's revenue will grow by 20.2% annually over the next 3 years.
• Analysts are not forecasting that Oneflow will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Oneflow's profit margin will increase from -46.8% to the average SE Software industry of 14.1% in 3 years.
• If Oneflow's profit margin were to converge on the industry average, you could expect earnings to reach SEK 42.7 million (and earnings per share of SEK 1.26) by about April 2028, up from SEK -82.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.1x on those 2028 earnings, up from -9.4x today. This future PE is greater than the current PE for the SE Software industry at 30.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.16%, as per the Simply Wall St company report.

Oneflow Future Earnings Per Share Growth

Risks

• The decrease in net new ARR by 16% in Q4 and high churn rates could indicate challenges in retaining customers, potentially impacting overall revenue growth and net margins.
  
• The slowdown in expansion ARR due to sluggish market sentiment and longer sales cycles may hinder revenue growth targets, affecting earnings projections.
  
• Despite efforts to improve cost management and profitability, the focus on achieving more with less, while necessary, could lead to operational risks and impact net margins if not executed effectively.
  
• Dependence on small companies with low product adoption, comprising a significant portion of churn, highlights stability risks in revenue streams and net profitability.
  
• Investments in strategic partnerships and the stabilization of the cost base, while aimed at long-term growth, may strain short-term EBITDA and EBIT if anticipated revenue growth does not materialize.

Valuation

• The analysts have a consensus price target of SEK39.0 for Oneflow based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK304.0 million, earnings will come to SEK42.7 million, and it would be trading on a PE ratio of 37.1x, assuming you use a discount rate of 6.2%.
• Given the current share price of SEK27.3, the analyst price target of SEK39.0 is 30.0% 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.