Legacy And AI Risks Will Constrain Outlook But Allow Progress

Key Takeaways

• High customer churn on legacy platforms and execution risks in migration may hinder sustained revenue growth and margin expansion.
  
• Reliance on niche customer segments and risks from AI commoditization could limit pricing power and long-term scalability.
  
• Execution risk around new product adoption, revenue retention issues, and competitive pressures threaten growth and margin improvement while elevated leverage constrains financial flexibility.

Catalysts

Operates as a technology provider for global policy and market intelligence in North America, Europe, Australia, and Asia.

• While FiscalNote is benefiting from the increasing complexity of regulatory and legislative environments, which is driving strong inbound demand and a higher corporate new logo pipeline, the business continues to face material headwinds from weak gross and net retention on its legacy platforms, limiting near-term revenue and ARR growth until migration to PolicyNote is more fully realized.
  
• Although the digital transformation of government and legal workflows is expanding the company's addressable market and supporting customer engagement for platforms like PolicyNote, the company remains vulnerable to emerging generative AI and open data initiatives, which may lead to commoditization of public policy data, potentially capping pricing power and squeezing future margins.
  
• Despite substantial operational improvements and a successful refinancing that extends debt maturities and improves balance sheet flexibility, persistent unprofitability and high operating expenses relative to current top-line growth could sustain liquidity pressures, constrain future investment, and impact the path to meaningful positive earnings.
  
• While consolidation within information and professional services is creating advantages for scalable, tech-enabled platforms, FiscalNote's overreliance on a subscription-based model serving relatively niche customer segments such as governments and advocacy groups may slow its ability to diversify revenue streams and scale, restricting longer-term compounded revenue growth.
  
• Even though the rollout of PolicyNote and the rapid pace of AI-driven innovation enhance the ability to upsell and increase customer lifetime value, execution risk in product integration and customer migration, as well as ongoing instability in key verticals like US federal agencies, could continue to negatively impact net revenue retention and prolong the timeline for sustainable improvement in gross margins.

FiscalNote Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on FiscalNote Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming FiscalNote Holdings's revenue will decrease by 4.7% annually over the next 3 years.
• The bearish analysts are not forecasting that FiscalNote Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate FiscalNote Holdings's profit margin will increase from -41.8% to the average US Professional Services industry of 7.1% in 3 years.
• If FiscalNote Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $6.8 million (and earnings per share of $0.03) by about August 2028, up from $-45.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 61.8x on those 2028 earnings, up from -2.0x today. This future PE is greater than the current PE for the US Professional Services industry at 26.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.84%, as per the Simply Wall St company report.

FiscalNote Holdings Future Earnings Per Share Growth

Risks

• The company's annual recurring revenue and subscription revenue have both declined versus the prior year, as FiscalNote is still working through its transition away from legacy products, and the company explicitly acknowledges ongoing gross and net retention issues-continued retention and expansion challenges may limit revenue growth and slow a sustained recovery in top-line performance.
  
• Federal sector instability and shifting customer demands, highlighted by management as atypical instability and continually shifting landscape, present risk to customer relationships in a critical vertical, potentially creating ongoing headwinds for sales, contract renewals and revenue stability across a significant part of the customer base.
  
• Despite progress, the company is relying heavily on the successful migration and adoption of its new PolicyNote platform to restore growth and improve customer retention, which introduces substantial execution risk-any delays or underperformance in feature rollouts, migration pace, or customer adoption could increase churn or reduce upsell/cross-sell potential, directly pressuring both revenue and net margins.
  
• FiscalNote's capital structure remains leveraged, with new debt refinancing extending maturities but also increasing annual interest expense-this could weigh on future earnings and free cash flow, especially if revenue and ARR growth do not resume as quickly or robustly as management anticipates.
  
• The company is exposed to heightened competitive risk from emerging AI and data analytics tools and faces possible commoditization of policy data; if new or existing competitors lower prices or offer comparable platforms, FiscalNote could face downward pricing pressure and increased client churn, making it harder to improve margins and achieve sustainable revenue growth.

Valuation

• The assumed bearish price target for FiscalNote Holdings is $1.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of FiscalNote Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.5, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $94.9 million, earnings will come to $6.8 million, and it would be trading on a PE ratio of 61.8x, assuming you use a discount rate of 9.8%.
• Given the current share price of $0.52, the bearish analyst price target of $1.5 is 65.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.