AI Governance And Microsoft Dependence Will Reshape Long Term Prospects More Positively

Catalysts

About AvePoint

AvePoint provides SaaS solutions that secure, protect and govern enterprise data across Microsoft, Google and other cloud platforms.

What are the underlying business or industry changes driving this perspective?

• Although enterprises are delaying AI rollouts because of data security and governance concerns, AvePoint must still prove that its agent governance tools are essential rather than optional add ons, which could limit how much of AI related IT budgets convert into recurring revenue and ARR.
• Although the shift toward multi SaaS, multi cloud adoption gives AvePoint more workloads to cover, the company still depends heavily on the Microsoft ecosystem and slower progress in broadening non Microsoft revenue could cap diversification benefits and leave overall revenue growth more exposed to one vendor.
• While the rise of AI agents and digital employees could increase demand for governance platforms, customers may keep pilots small and tightly controlled for longer than expected, which would temper expansion activity and slow the pace of ARR growth from agentic AI use cases.
• While AvePoint is adding backup and protection for more SaaS apps such as monday.com, Docusign and Smartsheet, larger security and data management vendors could bundle similar capabilities, pressuring pricing and potentially limiting future net margin improvement.
• Although channel sourced ARR and MSP growth support more efficient customer acquisition, any slowdown in partner driven deal flow or weaker upsell through those routes could reduce sales efficiency gains and make it harder to sustain current levels of operating margin expansion and earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on AvePoint compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming AvePoint's revenue will grow by 18.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.5% today to 12.5% in 3 years time.
• The bearish analysts expect earnings to reach $82.3 million (and earnings per share of $0.35) by about January 2029, up from $2.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $125.7 million.
• 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 65.4x on those 2029 earnings, down from 1491.9x today. This future PE is greater than the current PE for the US Software industry at 32.6x.
• The bearish analysts expect the number of shares outstanding to grow by 6.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The heavy reliance on the Microsoft ecosystem, with management indicating just over 90% of revenue is tied to Microsoft, means slower adoption or pricing changes from a single partner could weigh on AvePoint's ability to grow multi cloud use cases. This would pressure long term revenue diversification and could potentially cap earnings.
• Public sector uncertainty, including softness in U.S. federal spending and the impact of government shutdowns on deal timing and upsell, has already been cited as a drag on gross and net retention. A prolonged period of cautious government budgets could hold back ARR growth and compress operating margins.
• AI agent adoption is still early, with management acknowledging that full fledged digital employees are not yet widely deployed and customers are being very careful. If this secular shift rolls out more slowly than hoped, the monetization of AvePoint's agent governance capabilities could lag, which may limit ARR expansion and earnings growth tied to AI use cases.
• The push into non Microsoft SaaS and multi cloud data protection is currently less than 10% of the business. If larger security or data management vendors respond with bundled offerings around platforms like monday.com, Docusign, Smartsheet, Google and Salesforce, AvePoint could face pricing pressure that weighs on net margins and slows progress toward its US$1b ARR goal.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for AvePoint is $16.0, which represents up to two standard deviations below the consensus price target of $19.09. This valuation is based on what can be assumed as the expectations of AvePoint'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 $26.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $658.1 million, earnings will come to $82.3 million, and it would be trading on a PE ratio of 65.4x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $13.62, the analyst price target of $16.0 is 14.9% 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.