iOS App Upgrade And Global Expansion Will Boost Future Prospects

Key Takeaways

• Expansion into Africa and Latin America is expected to boost net sales by diversifying revenue sources and leveraging positive growth trends.
  
• Innovations in ad units and enhanced subscription conversion strategies may significantly increase advertising and subscription revenues, positively impacting overall financial performance.
  
• Truecaller's rising growth-related costs and reliance on advertising revenue could impact net margins and profitability, especially amid execution risks and tax uncertainties.

Catalysts

Develops and publishes mobile caller ID applications for individuals and business in India, the Middle East, Africa, and internationally.

• Truecaller's launch of the upgraded iOS app, with a focus on a premium subscription model, is expected to lead to a growth in subscription revenues, as iPhone users are already contributing significantly to the current subscription income. This could positively impact overall revenue growth starting from Q2 2025.
  
• The company's expansion into new markets in Africa and Latin America, leveraging positive organic growth trends, suggests a strategic push for user and revenue growth. This is likely to enhance net sales by increasing the geographic diversity of revenue streams.
  
• The introduction and anticipated scaling of the innovative Caller ID ad unit, managed through Truecaller's proprietary ad server, could substantially increase advertising revenues per user by capturing new advertising opportunities. This is expected to contribute to revenue growth by improving ad revenue yield.
  
• Truecaller for Business continues to see a high growth rate and low revenue churn in its SaaS offerings, which are expanding into new functionalities and markets. This evolution is forecasted to drive further growth in recurring revenues, positively impacting both net sales and gross margins.
  
• The use of the User Monetization Engine to improve subscription conversion and retention by targeting users with personalized offers is expected to drive an increase in average revenue per user and premium subscriber numbers. This is likely to enhance subscription revenue and net income.

Truecaller Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Truecaller's revenue will grow by 28.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.0% today to 33.8% in 3 years time.
• Analysts expect earnings to reach SEK 1.3 billion (and earnings per share of SEK 4.03) by about March 2028, up from SEK 524.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK1.8 billion in earnings, and the most bearish expecting SEK1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.2x on those 2028 earnings, down from 47.6x today. This future PE is lower than the current PE for the SE Software industry at 33.7x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.89%, as per the Simply Wall St company report.

Truecaller Future Earnings Per Share Growth

Risks

• Truecaller is seeing an increase in costs related to growth investments and incentive programs, which may impact net margins if revenue growth does not sufficiently cover these expenses.
  
• The company has highlighted potential risks due to server costs associated with the launch of its new iPhone offering, which could pressure operating margins in the near term.
  
• There are concerns over the tax survey initiated by the Indian tax authorities, which, although not expected to result in significant changes, could potentially impact net earnings if any tax adjustments are required.
  
• Truecaller is reliant on advertising as a major revenue stream, and any downturn in digital ad demand, especially in key markets like India, could directly hit revenue growth and profitability.
  
• The company's expansion into new markets involves execution risks and increased costs, which if not managed carefully, could negatively affect net profit margins and overall financial performance.

Valuation

• The analysts have a consensus price target of SEK90.429 for Truecaller 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 SEK112.0, and the most bearish reporting a price target of just SEK63.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK4.0 billion, earnings will come to SEK1.3 billion, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of SEK72.7, the analyst price target of SEK90.43 is 19.6% 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.