User Growth In Colombia And Nigeria Will Drive Future Success

Key Takeaways

• Growth in active users and new ad formats in key markets could drive substantial future revenue increase and ad revenue growth.
  
• Expansion of Truecaller for Business and iOS upgrades may enhance recurring revenue and financial stability through improved subscription and business service streams.
  
• Currency challenges, subdued ad markets, increased expenses, strategic operational transitions, and shift to subscriptions impact Truecaller's revenue growth and investor confidence.

Catalysts

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

• The significant growth in active users, particularly in targeted focus markets such as Colombia and Nigeria, suggests potential for substantial future revenue increase as user engagement enhances ad impressions and subscription conversions.
  
• The expansion and improvements in ad formats, such as the introduction of higher CPM video ads and innovative ad formats, could positively impact future advertising revenue, especially as these formats are scaled up.
  
• The substantial development and acceptance of the Truecaller for Business offering, including increased revenues from Verified Business contracts and business messaging, indicate potential for enhanced recurring revenue streams and stable cash flows.
  
• The upcoming major iOS product upgrade, designed to enhance features on par with Android, could significantly increase iOS revenue given the high conversion rates and willingness to pay among iOS users, thereby boosting subscription revenues.
  
• The strategic focus on scaling recurring revenue streams, with the ambition to reach SEK 1 billion, introduces additional stability and diversification to revenue growth, potentially leading to improved net margins and long-term financial stability.

Truecaller Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Truecaller's revenue will grow by 24.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.6% today to 33.4% in 3 years time.
• Analysts expect earnings to reach SEK 1.2 billion (and earnings per share of SEK 3.3) by about January 2028, up from SEK 490.1 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 23.1x on those 2028 earnings, down from 46.4x today. This future PE is lower than the current PE for the SE Software industry at 43.9x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Truecaller Future Earnings Per Share Growth

Risks

• Currency fluctuations, especially the stronger Swedish krona against the Indian rupee, are negatively impacting net sales, resulting in potential revenue decreases.
  
• The digital advertising market, particularly in India, remains subdued with supply outpacing demand, leading to lower prices in the banner ad market which can adversely affect advertising revenue growth.
  
• Increased expenses related to digital performance marketing, staff incentives, and preloads in strategic markets may pressure net margins, despite efforts to improve efficiency.
  
• The planned transition of Truecaller on iOS to a primarily subscription-based product could potentially reduce the user base, impacting immediate revenue growth if not enough users convert to paying subscriptions.
  
• Operational changes and leadership transitions, such as the founders stepping aside and possible tax scrutiny in India, might introduce uncertainties that could affect investor confidence and the company's future earnings trajectory.

Valuation

• The analysts have a consensus price target of SEK64.86 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 SEK79.0, and the most bearish reporting a price target of just SEK60.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK3.5 billion, earnings will come to SEK1.2 billion, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 5.5%.
• Given the current share price of SEK66.3, the analyst's price target of SEK64.86 is 2.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.