AI Integration, SmartScan And Travel Will Drive Future Efficiency

Key Takeaways

• Expensify's strategic AI investments and successful card program expansion could enhance profitability and sustain revenue growth through increased margins and new revenue streams.
  
• Achieving debt-free status enhances Expensify's financial health, supporting growth investment opportunities and potentially boosting earnings through stock buybacks and user retention.
  
• Declining membership and significant costs related to AI integration may hinder Expensify's short-term profitability despite impressive free cash flow growth.

Catalysts

Engages in the provision of a cloud-based expense management software platform in the United States and internationally.

• Expensify's investment in AI technologies, such as SmartScan and Concierge, is improving efficiency and reducing costs, positioning the company to enhance future net margins and profitability by decreasing human intervention and leveraging AI capabilities.
  
• The successful migration of the Expensify Card program and its strong growth, with a 62% increase in interchange revenue year-over-year, indicate potential for sustained revenue growth as it becomes a more significant revenue stream.
  
• The launch of Expensify Travel adds new revenue opportunities, potentially increasing transaction and fee-based revenue while also boosting overall user engagement with the platform.
  
• Expensify's strategic initiative to migrate users to a new AI-centric platform and shift branding focus is aimed at leveraging future market opportunities by setting itself apart through advanced technological offerings, potentially enhancing future earnings through user growth and retention.
  
• The company's focus on debt reduction, evidenced by becoming debt-free, improves its financial health and allows for more strategic investments in growth initiatives and potential return actions like stock buybacks, potentially impacting EPS positively.

Expensify Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Expensify's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.2% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $6.2 million (and earnings per share of $-0.09) by about April 2028, up from $-10.1 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 97.3x on those 2028 earnings, up from -24.8x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 5.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.65%, as per the Simply Wall St company report.

Expensify Future Earnings Per Share Growth

Risks

• The company's net loss of $10.1 million for fiscal year 2024, despite positive growth in some metrics, remains a significant indicator that achieving GAAP profitability is still a challenge, potentially affecting earnings.
  
• The seasonality observed and the decline in paid members to 665,000 in January may highlight a risk in maintaining consistent revenue growth, impacting overall revenue stability.
  
• Although free cash flow has seen impressive growth, the dependency on external factors like macroeconomic environments could affect future cash flows and margins if conditions do not remain favorable.
  
• Despite the promising outlook of integrating AI, substantial costs associated with innovation, product development, and the adoption of AI might burden short-term profitability and operational margins.
  
• Competitive pressures and user adoption challenges, especially with new systems that might not integrate seamlessly with existing third-party systems like Slack, could limit immediate revenue opportunities and dampen growth prospects for Expensify.

Valuation

• The analysts have a consensus price target of $4.5 for Expensify 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 $5.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $170.0 million, earnings will come to $6.2 million, and it would be trading on a PE ratio of 97.3x, assuming you use a discount rate of 7.6%.
• Given the current share price of $2.73, the analyst price target of $4.5 is 39.3% 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.