Future Earnings Will Decline As Profit Margins Contract And Share Dilution Increases

Key Takeaways

• Commvault's focus on cyber resilience and cloud integration is expected to drive revenue growth through increased demand and expanded market reach.
  
• Strategic partnerships and unique offerings like Cleanroom Recovery enhance market penetration and customer adoption, boosting revenue and profitability.
  
• Strategic innovations and partnerships in cloud backup and cyber resilience, along with growth in subscription revenue, position Commvault for strong market and earnings expansion.

Catalysts

Provides a platform that enhances cyber resiliency by protecting the data in the United States and internationally.

• Commvault's commitment to cyber resilience and data security positions the company to benefit from growing demand for these services, especially given the increase in cyber threats and regulatory changes. This is likely to positively impact future revenue and subscription growth.
  
• The strategic expansion into cloud environments, with offerings like Cloud Rewind and Clumio Backtrack, aims to protect AI and ML data, significantly broadening Commvault's addressable market. This could drive future revenue growth and potentially enhance net margins through cross-selling opportunities.
  
• The focus on developing unique features, such as Cleanroom Recovery and Active Directory protection, provides a competitive edge and can lead to higher customer adoption rates. These innovations are expected to improve earnings by attracting new clients and increasing the number of SaaS customers.
  
• The planned enhancements and new partnerships, such as integration with AWS and Google Workspace, are designed to deepen market penetration and increase transaction volumes through strategic alliances. This expansion is likely to drive higher revenue and SaaS ARR growth.
  
• Commvault's increased investment in go-to-market strategies and growing partner ecosystem could lead to higher salesforce productivity and greater global reach, which are expected to result in improved revenue growth and overall profitability.

Commvault Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Commvault Systems's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.1% today to 7.4% in 3 years time.
• Analysts expect earnings to reach $95.9 million (and earnings per share of $1.9) by about January 2028, down from $171.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $139.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 112.1x on those 2028 earnings, up from 40.9x today. This future PE is greater than the current PE for the US Software industry at 43.6x.
• Analysts expect the number of shares outstanding to grow by 4.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

Commvault Systems Future Earnings Per Share Growth

Risks

• Commvault experienced a strong 21% increase in total revenue, driven by robust growth in subscription revenue, which jumped by 39%. This suggests continued growth in revenue due to successful product offerings.
  
• The company's SaaS annual recurring revenue (ARR) grew 75% in constant currency, indicating strong demand and providing potential for ongoing earnings growth.
  
• Commvault announced new strategic partnerships and innovations, including enhanced cloud backup capabilities for major providers like AWS, Google, and Microsoft, which could enhance market share and revenue.
  
• Commvault is strategically positioned in the growing cyber resilience market, leveraging new innovations like Cloud Rewind and Cleanroom Recovery, which could drive competitive advantage and increase net margins.
  
• An increased investment in growth-oriented initiatives and a strong partner ecosystem have already led to record sales productivity and expansion activity, which could lead to further improvement in earnings.

Valuation

• The analysts have a consensus price target of $175.78 for Commvault Systems 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 $200.0, and the most bearish reporting a price target of just $144.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $95.9 million, and it would be trading on a PE ratio of 112.1x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $160.05, the analyst's price target of $175.78 is 8.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.