AI Capabilities And Sales Efforts Will Expand Markets

Key Takeaways

• Expanding AI capabilities and upselling to existing customers aims to drive significant revenue and ARPU growth.
  
• Product maturity and strategic acquisitions are expected to capture market share and support margin improvement.
  
• Kaltura faces challenges in revenue growth and customer retention, impacted by declining service revenue, market expansion costs, and economic fluctuations.

Catalysts

Provides various software-as-a-service (SaaS) products and solutions and a platform-as-a-service (PaaS) in the United States, Europe, the Middle East, Africa, and internationally.

• Kaltura's plan to expand its AI capabilities, including personalized and data-driven video experiences, is expected to enhance product offerings and could drive revenue growth through increased customer demand and adoption.
  
• The company anticipates market improvements from easing budgetary constraints and digital transformations, which could positively impact overall revenue and demand for video content in enterprise settings and media and telecom segments.
  
• Kaltura aims to leverage its existing major customer base by upselling and increasing the share of customer spend, which could enhance Average Revenue Per User (ARPU) and drive ARR growth.
  
• The maturity of new products, such as virtual events and webinars, is positioning Kaltura to capture increased market share and increase subscription revenue, thereby supporting stronger net margins.
  
• Growing the sales force and focusing efforts to acquire new customers across all industries are expected to drive top-line revenue growth by increasing the customer base and boosting subscription bookings.

Kaltura Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kaltura's revenue will grow by 3.5% annually over the next 3 years.
• Analysts are not forecasting that Kaltura will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Kaltura's profit margin will increase from -17.5% to the average US Software industry of 11.8% in 3 years.
• If Kaltura's profit margin were to converge on the industry average, you could expect earnings to reach $23.4 million (and earnings per share of $0.13) by about April 2028, up from $-31.3 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 28.7x on those 2028 earnings, up from -9.9x today. This future PE is lower than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 4.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Kaltura Future Earnings Per Share Growth

Risks

• Kaltura's professional services revenue declined 40% year-over-year, reflecting challenges in this segment that could impact overall revenue growth if not addressed.
  
• The company has cited macroeconomic and FX fluctuations as potential risks, which could affect both revenue and net margins if these external factors adversely impact operations or client demand.
  
• The net dollar retention rate remained flat at 100% for the year 2024, indicating potential challenges in upselling or retaining existing customers, which could hinder revenue growth.
  
• There are expectations of increased M&T churn in the first half of 2025, which could negatively impact revenue and gross retention rates, posing a risk to financial stability.
  
• Kaltura's market expansion necessitates significant investments in sales force growth, which, if not yielding anticipated returns, could strain net margins and profitability.

Valuation

• The analysts have a consensus price target of $3.0 for Kaltura 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 $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $198.1 million, earnings will come to $23.4 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 8.0%.
• Given the current share price of $2.01, the analyst price target of $3.0 is 33.0% 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.