Vertical Diversification And AWS Migration Will Improve Service Outcomes

Key Takeaways

• Strategic diversification and AI investments position Intellicheck to capitalize on high-margin markets, enhancing growth in identity verification and fraud prevention.
  
• Transition to AWS and improved customer success strategies are aimed at reducing costs, boosting profitability, and increasing market share.
  
• Heavy reliance on retail and consumer spending trends, combined with cloud migration costs, could impact Intellicheck's revenue growth and net margins.

Catalysts

A technology company, provides on-demand digital identity validation solutions for KYC, fraud, and age verification needs in North America.

• Intellicheck's focus on vertical channel diversification and investment in best-in-class ID validation services is expected to drive revenue growth, especially as they penetrate higher-margin markets like automotive and title insurance.
  
• Their unique technology using barcode verification for ID checks, in collaboration with the American Association of Motor Vehicle Administrators, distinguishes them from competitors, potentially increasing market share and revenue in the growing identity verification market.
  
• The transition from Azure to AWS is anticipated to result in reduced cloud hosting costs, improving net margins and overall profitability as operating efficiencies are realized.
  
• Ongoing initiatives in AI capabilities and machine learning investments promise to enhance their technology offering, which could lead to better service outcomes and revenue growth by attracting more clients seeking advanced fraud prevention solutions.
  
• Enhanced customer success strategies and marketing efforts, including leadership changes and optimized customer-facing materials, aim to improve client retention and acquisition, thus positively impacting earnings through increased business from existing clients and new sales.

Intellicheck Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intellicheck's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.6% today to 3.0% in 3 years time.
• Analysts expect earnings to reach $744.7 thousand (and earnings per share of $0.04) by about May 2028, up from $-918.0 thousand 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 108.8x on those 2028 earnings, up from -54.6x today. This future PE is greater than the current PE for the US Software industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Intellicheck Future Earnings Per Share Growth

Risks

• Potential economic downturns and consumer caution could negatively impact retail-related transaction volumes, affecting Intellicheck's revenue growth, given their significant exposure to retail, which accounts for 75% of scan volumes.
  
• The shift in consumer behavior towards needs-based spending can result in lower transaction volumes for retail clients, slowing down revenue growth.
  
• Heavy reliance on retail and the associated risks of further slowdowns in this sector may pose challenges in maintaining revenue stability and growth rates.
  
• The transition from Azure to AWS involves dual running costs for cloud services, potentially impacting short-term net margins until the migration is fully complete.
  
• Lengthy and complex sales cycles with larger clients, including procurement delays with significant social media clients, could slow anticipated revenue inflows from these contracts.

Valuation

• The analysts have a consensus price target of $3.25 for Intellicheck 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 $4.0, and the most bearish reporting a price target of just $2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $25.2 million, earnings will come to $744.7 thousand, and it would be trading on a PE ratio of 108.8x, assuming you use a discount rate of 7.6%.
• Given the current share price of $2.53, the analyst price target of $3.25 is 22.2% 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.