Dream Sock, BabySat, And Company360 Will Expand Global Healthcare Access

Key Takeaways

• Owlet's FDA and CE approvals pave the way for global market expansion, boosting international revenue potential.
  
• Transition to a pediatric health platform and new service offerings could drive improved margins and increased customer engagement.
  
• Uncertainty around new products, legal challenges, and shifting retailer patterns could impact revenue growth and margin stability for Owlet.

Catalysts

Provides digital parenting solutions in the United States, the United Kingdom, and internationally.

• The successful FDA clearance of Owlet's Dream Sock and BabySat, alongside CE medical approval in Europe, positions the company for expanded global market penetration, potentially driving significant international revenue growth.
  
• The development of Owlet360, their new subscription service, is expected to create a predictable stream of recurring revenue, improve net margins through higher-margin service offerings, and increase customer lifetime value by extending engagement beyond infancy into toddler years.
  
• The expansion into medical and healthcare channels, particularly with the BabySat product eligible for insurance reimbursement, could substantially boost revenue and gross margins by tapping into a high-value segment of the pediatric healthcare market.
  
• Increasing awareness and adoption of Owlet's products, especially in higher population states in the U.S., driven by strategic marketing and positive word of mouth, could significantly enhance domestic revenue growth.
  
• The shift from a purely hardware-based model to a comprehensive pediatric health platform with telehealth capabilities positions Owlet to improve earnings by capturing a larger share of the pediatric healthcare market and leveraging a unique large dataset to provide differentiated value propositions.

Owlet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Owlet's revenue will grow by 19.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -16.1% today to 1.1% in 3 years time.
• Analysts expect earnings to reach $1.5 million (and earnings per share of $0.04) by about April 2028, up from $-12.5 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 199.9x on those 2028 earnings, up from -4.3x today. This future PE is greater than the current PE for the US Medical Equipment industry at 29.5x.
• 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 7.34%, as per the Simply Wall St company report.

Owlet Future Earnings Per Share Growth

Risks

• Owlet's guidance for 2025 does not assume any material revenue contributions from its recently launched products, BabySat and Owlet360, revealing uncertainty about their near-term impact on revenue growth.
  
• Legal charges related to settlements from previous cases tied to potential FDA classification issues could increase operating expenses and affect net margins.
  
• Changes in retailer purchasing patterns, with late shifts of inventory orders into Q4, create potential revenue volatility and could impact earnings predictions.
  
• The international market, while promising, is still emerging, which presents risks in achieving consistent revenue growth compared to the U.S.
  
• Slow scale-up in insurance reimbursements for BabySat and dependency on certain partners like AdaptHealth might delay the expansion in the healthcare channel, affecting anticipated revenue from this segment.

Valuation

• The analysts have a consensus price target of $11.75 for Owlet 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 $15.0, and the most bearish reporting a price target of just $8.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $134.6 million, earnings will come to $1.5 million, and it would be trading on a PE ratio of 199.9x, assuming you use a discount rate of 7.3%.
• Given the current share price of $3.29, the analyst price target of $11.75 is 72.0% 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.