High-margin Partnerships And AI Screening Will Unlock Global Preventive Markets

Key Takeaways

• Diversifying revenue through high-margin partnerships and AI-driven health products is strengthening margins and expanding global market opportunities across both consumer and business channels.
  
• Proprietary AI capabilities and interoperable health data position Sleep Cycle for premium pricing, long-term user retention, and attractive partnerships amid growing wellness trends.
  
• Persistent subscriber declines, heavy platform dependence, intensifying competition, uncertain new revenue streams, and regulatory hurdles threaten both growth prospects and earnings stability.

Catalysts

Engages in providing sleep tracking applications in Sweden.

• Expansion of high-margin partnership/licensing revenue streams, such as technology integrations via the Powered by Sleep Cycle SDK, is accelerating (up 68% YoY, now ~10% of total revenues), and expected to further diversify sales and improve net margins.
  
• Progress toward regulatory approval and commercialization of the AI-driven, noninvasive sleep apnea screening product positions the company to capture a significant portion of an expanding global market for home-based preventive health solutions, with expected boosts to revenue and margins as B2C and B2B monetization unfolds.
  
• Increasing long-term consumer focus on health, wellness, and preventive care, particularly among aging populations, is likely to drive sustained demand for advanced sleep analytics-expanding Sleep Cycle's addressable market and supporting recurring subscription and partnership revenue growth.
  
• Ongoing investment in proprietary AI and data science strengthens Sleep Cycle's competitive differentiation against commoditized or integrated sleep-tracking features offered by larger tech platforms, supporting user retention, stickiness, and premium pricing-positively impacting earnings over time.
  
• Industry-wide integration of health data across platforms increases the value of Sleep Cycle's interoperable solutions and proprietary datasets, positioning the company as an attractive partner for health platforms, device makers, and insurers-supporting new revenue channels and potential long-term margin improvement.

Sleep Cycle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sleep Cycle's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 23.9% today to 22.9% in 3 years time.
• Analysts expect earnings to reach SEK 79.0 million (and earnings per share of SEK 3.41) by about August 2028, up from SEK 62.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK89.5 million in earnings, and the most bearish expecting SEK69 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 10.0x today. This future PE is lower than the current PE for the SE Software industry at 35.9x.
• 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 6.45%, as per the Simply Wall St company report.

Sleep Cycle Future Earnings Per Share Growth

Risks

• The number of paying subscribers decreased by 2.2% year-over-year and total net sales declined by 2.9%, primarily due to sustained softness in the direct-to-consumer (D2C) market, suggesting persistent headwinds in user acquisition and download trends that could restrain revenue and future earnings growth.
  
• The company's reliance on third-party distribution platforms (App Store and Play Store) exposes it to shifts in store algorithms and de-prioritization of the sleep app category, which continues to face declining category visibility and downloads; this gatekeeper influence over distribution could negatively impact new subscriber growth, revenues, and scalability.
  
• Competition from both established players like Apple (who bundle basic sleep tracking with devices and can leverage much larger platforms at lower user acquisition costs) and rapid-growing alternatives such as ShutEye threaten to commoditize core sleep-tracking features and erode pricing power, margin, and market share-pressuring both revenue growth and ARPU.
  
• The pivot toward new revenue streams (e.g., technology licensing partnerships and sleep apnea screening) remains early-stage and unproven at scale, making long-term revenue diversification uncertain; execution risk combined with potential volatility in partnership revenue could create instability in net sales and margin predictability.
  
• The pathway to launching the regulated sleep apnea offering is dependent on uncertain clinical study timelines and regulatory approvals (FDA/CE), and the market is already seeing competitors roll out similar-but unregulated-features, risking delayed time to market, higher R&D expenses, and lost first-mover advantages, all of which could negatively affect long-term earnings and return on investment.

Valuation

• The analysts have a consensus price target of SEK39.5 for Sleep Cycle 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 SEK345.4 million, earnings will come to SEK79.0 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of SEK30.65, the analyst price target of SEK39.5 is 22.4% 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.