Update shared on23 Aug 2025
Fair value Decreased 27%Q2 2025 Update (updated 250823)
Subscriptions continue to decline (-3%), leading to a top-line contraction that is likely to persist. However, partnerships are gaining momentum, with the company highlighting on the conference call that these could carry a more favorable margin profile. Based on management’s commentary, it is evident that the company cannot substantially alter the trajectory of subscriptions, as growth is largely dependent on external factors (e.g., app store visibility and category surfacing). The strategic focus is therefore shifting towards partnerships and licensing as the primary growth drivers.
Currency effects were less negative than anticipated, and margins came in above my prior assumptions.
A potential game-changer is the sleep apnea screening application, which could significantly alter the investment case in a positive direction. At this stage, however, it is not possible to model the impact.
Valuation: In the short term, the stock remains inexpensive despite top-line pressure, trading on an expected P/E of 10.1x for FY 2025 (based on my projections). Assuming a 100% payout ratio, the implied dividend yield for 2025 is ~10%.
Valuation model adjustments
- Forecast horizon shortened from five to three years, reflecting the strategic shift in focus and acknowledging that the sleep apnea application could disrupt the case within this timeframe.
- Top-line growth CAGR raised to 3.15% (from 2.9%), assuming USD/SEK stabilizes at current levels and partnerships gradually accelerate growth.
- Net profit margin trimmed to 21% (from 23%), reflecting higher costs related to the sleep apnea initiative.
- Target P/E multiple reduced to 15x (from 20x) to reflect the shorter time horizon and the limited near-term growth outlook. Despite an attractive, asset-light business model with strong cash flow, it is unlikely that the market will award a higher multiple in the short term.
The sleep apnea screening application remains the main upside kicker.
At these levels I am buying.
Disclaimer
The user Mandelman has a position in OM:SLEEP. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.