Key Takeaways
- Opportunities in existing and new markets could boost revenue through expansion and strategic partnerships, enhancing market share and positioning.
- Strong financial health and high gross margins support strategic investments and potential earnings growth.
- Management turnover, delayed revenue recognition, and rising inventory levels may strain liquidity and working capital, impacting investor confidence and profitability.
Catalysts
About Yubico- Provides authentication solutions for use in computers, networks, and online services.
- Significant opportunity for penetration growth among existing Fortune 500 and Global 2000 customers, who have only deployed Yubico's products to a subset of employees so far, suggesting substantial potential to increase revenue.
- Expansion efforts in new markets such as Asia Pacific and development of global channel models could lead to increased market share and thus higher revenue growth.
- Transitioning from login protection to full identity protection with partnerships like Okta and Microsoft, potentially opening new revenue streams and enhancing strategic positioning.
- High gross margins consistently above 80% due to focus on hardware-backed multi-factor authentication, supporting ongoing strong net margins.
- Strong financial position with low debt levels and high cash reserves sets the company up for strategic investments and market expansion, influencing future earnings growth positively.
Yubico Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Yubico's revenue will grow by 24.1% annually over the next 3 years.
- Analysts assume that profit margins will increase from 16.0% today to 19.3% in 3 years time.
- Analysts expect earnings to reach SEK 858.7 million (and earnings per share of SEK 9.55) by about March 2028, up from SEK 371.7 million today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.9x on those 2028 earnings, down from 43.4x today. This future PE is lower than the current PE for the SE Software industry at 35.5x.
- Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.
Yubico Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Heavy reliance on large orders and significant Q4 deliveries not being realized until Q1 2025 could impact short-term revenue recognition and cash flow, which might affect investor confidence in growth consistency.
- The transition from a perpetual model to a subscription-based model causes a delay in revenue recognition, potentially impacting short-term financials and complicating financial forecasting.
- Inventory levels have risen significantly and account receivables have doubled, which could strain working capital and cash flow if not managed carefully, affecting net margins and liquidity.
- Currency fluctuations and unrealized positive currency effects might mask underlying operational issues. Reliance on favorable currency movements could lead to unpredictable impacts on profitability.
- Management turnover, such as the CFO's impending retirement, poses potential execution risks, as effective transition and maintaining leadership stability is crucial for strategic goals and operational efficiency, impacting earnings potential.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of SEK292.5 for Yubico 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 SEK4.4 billion, earnings will come to SEK858.7 million, and it would be trading on a PE ratio of 34.9x, assuming you use a discount rate of 6.0%.
- Given the current share price of SEK186.8, the analyst price target of SEK292.5 is 36.1% 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.
How well do narratives help inform your perspective?
Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) 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 price targets and estimates used are consensus data, and do 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 Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.