PolicyNote Platform Will Boost Engagement Despite Revenue Headwinds

Key Takeaways

• Introducing PolicyNote aims to boost customer retention and revenue growth by enhancing client engagement and leveraging advanced features.
  
• Streamlining operations and simplifying the product portfolio target improved EBITDA margins and financial stability.
  
• Market volatility, divestitures, and customer retention challenges could negatively impact revenue growth and margins, highlighting uncertainties in future earnings.

Catalysts

Operates as technology company North America, Europe, Australia, and Asia.

• The launch of PolicyNote, an AI-first platform aimed at consolidating policy-related data, is expected to enhance customer engagement and retention. This should positively impact ARR and promote GAAP revenue growth in 2026 and beyond, as more clients transition to the platform and benefit from its advanced features.
  
• Continued focus on improving EBITDA margins through simplifying operations, product portfolio streamlining, and the reduction of organizational complexity should lead to greater efficiencies and higher net margins. The anticipated increase in EBITDA from $9.8 million in 2024 to a range of $10 million to $12 million in 2025 demonstrates this potential.
  
• A significant reduction in senior debt by over 60% in the past year and ongoing efforts to improve the capital structure are setting the stage for decreased interest expenses, leading to better net margins and accelerating the path to positive free cash flow.
  
• FiscalNote's strategy of simplifying the product mix and focusing on the core policy business, alongside the estimated $40 million from asset sales, will help to achieve a target leverage ratio of 2x to 3x in the foreseeable future, improving financial stability and positively impacting earnings.
  
• Increasing multiyear contracts with corporate clients and strong customer feedback on new AI features indicate growing market confidence and potential improvements in gross retention rates. This should contribute to stronger top-line revenue growth in 2026 and boost revenues through higher levels of customer commitment.

FiscalNote Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FiscalNote Holdings's revenue will decrease by 7.6% annually over the next 3 years.
• 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 7.9% to the average US Professional Services industry of 6.3% in 3 years.
• If FiscalNote Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $5.9 million (and earnings per share of $0.03) by about April 2028, down from $9.5 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 127.7x on those 2028 earnings, up from 10.7x today. This future PE is greater than the current PE for the US Professional Services industry at 20.8x.
• 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 9.38%, as per the Simply Wall St company report.

FiscalNote Holdings Future Earnings Per Share Growth

Risks

• The company's anticipated 2025 revenues are forecasted to be lower than 2024, partially due to the divestiture of Oxford Analytica and Dragonfly, which could impact future revenue growth.
  
• The guidance for 2025 reflects some volatility in the public sector due to changes in the federal government which may affect corporate buying decisions; this unpredictability could negatively impact revenue and net margins.
  
• Net revenue retention declined slightly from 99% to 98%, indicating potential weaknesses in customer retention, which could affect future earnings and revenue stability.
  
• The lack of an end-of-year ARR uptick in 2024 that the company typically experienced in the past suggests potential challenges in maintaining steady growth, potentially impacting revenue projections.
  
• The ongoing market volatility and macroeconomic unpredictability, particularly in the private sector, may lead to delays or reductions in corporate spending, affecting revenue growth and net margins.

Valuation

• The analysts have a consensus price target of $2.938 for FiscalNote Holdings 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 $4.5, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $94.8 million, earnings will come to $5.9 million, and it would be trading on a PE ratio of 127.7x, assuming you use a discount rate of 9.4%.
• Given the current share price of $0.63, the analyst price target of $2.94 is 78.5% 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.