MANTL Integration And Kubernetes Migration Will Shape Future Platforms

Key Takeaways

• The integration of MANTL enhances user growth, revenue, and market presence through core-agnostic solutions and cross-selling opportunities.
  
• Investments in technology efficiency and low churn rates support future earnings growth and sustained profitability.
  
• Alkami's growth strategy through acquisitions and cross-selling poses risks related to integration, financial stability, market competition, and revenue consistency.

Catalysts

Provides cloud-based digital banking solutions in the United States.

• Alkami's acquisition of MANTL is expected to enhance its platform with a premier onboarding and account opening solution, addressing a key market need, and potentially boosting revenue by expanding its Total Addressable Market (TAM) and cross-selling opportunities.
  
• The integration of MANTL's core-agnostic platform could lead to user growth acceleration, particularly in banks where Alkami's presence is currently limited, impacting revenue volume positively.
  
• Investment in platform efficiency through technology improvements (e.g., migration to Kubernetes) has been reducing hosting costs and improving gross margins, setting the stage for future earnings growth.
  
• Alkami's plan to leverage MANTL's client base for cross-selling its digital banking solutions is anticipated to elevate revenue per user (RPU), enhancing revenue and net margin potential.
  
• Alkami's focused strategy on maintaining low churn rates and growing its annual recurring revenue (ARR) provides a solid foundation for sustained revenue growth and improved profitability.

Alkami Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alkami Technology's revenue will grow by 25.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.5% today to 2.8% in 3 years time.
• Analysts expect earnings to reach $19.9 million (and earnings per share of $-0.84) by about July 2028, up from $-37.2 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 287.2x on those 2028 earnings, up from -77.8x today. This future PE is greater than the current PE for the US Software industry at 42.7x.
• Analysts expect the number of shares outstanding to grow by 4.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

Alkami Technology Future Earnings Per Share Growth

Risks

• The acquisition of MANTL, while strategically beneficial, involves risks related to integration, which could impact revenue or increase costs if not executed smoothly.
  
• The reliance on cross-selling between Alkami and MANTL to drive growth presents execution risks, potentially affecting revenue projections if the integration is not successfully achieved.
  
• Alkami's aggressive growth strategy through acquisitions might strain financial resources or lead to increased debt, potentially impacting net margins and financial stability.
  
• The competitive pressures from both mega banks and fintechs could challenge revenue growth and market share, especially if Alkami and MANTL cannot consistently differentiate their offerings.
  
• The potential for increased churn due to overlapping client bases or integration challenges from the acquisition might impact earnings or future revenue stability if not carefully managed.

Valuation

• The analysts have a consensus price target of $38.8 for Alkami Technology 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 $46.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $709.5 million, earnings will come to $19.9 million, and it would be trading on a PE ratio of 287.2x, assuming you use a discount rate of 8.3%.
• Given the current share price of $28.1, the analyst price target of $38.8 is 27.6% 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.