New Client Acquisitions And AI Developments Will Open Future Markets

Key Takeaways

• Strategic investments in underpenetrated markets and enhanced technology could drive revenue growth and higher client revenue.
  
• Financial flexibility from no debt enables strategic investments for operational efficiency and improved net margins, despite industry headwinds.
  
• Regulatory challenges, rising costs, and industry consolidation are impacting WM Technology's revenue and financial stability amid declining client purchasing power and increased operating expenses.

Catalysts

An online cannabis marketplace, provides ecommerce and compliance software solutions to retailers and brands in cannabis market in the United States and internationally.

• The company is focusing on acquiring new clients in underpenetrated markets and improving its technology and data infrastructure, which could lead to increased revenue growth and higher revenue per client over time.
  
• Recent restructuring in the marketing organization and efforts to reconnect with the cannabis community heritage are expected to bolster brand identity, potentially increasing market penetration and subsequently boosting revenues.
  
• Development in AI and machine learning capabilities, alongside enhancements in the product catalog and search functionalities, could lead to the introduction of innovative ad products and marketplace improvements, likely driving future revenue growth.
  
• With no debt on its balance sheet and a strategic focus on cash generation, WM Technology has the financial flexibility to make strategic investments, which could enhance operational efficiencies leading to improved net margins.
  
• Despite industry headwinds, WM Technology has achieved sequential cash growth and expects to continue making strategic investments, positioning it well to capitalize on regulatory changes and eventual market maturity, which may enhance future earnings.

WM Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WM Technology's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 17.3% in 3 years time.
• Analysts expect earnings to reach $42.4 million (and earnings per share of $0.22) by about May 2028, up from $8.0 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 16.0x on those 2028 earnings, up from 14.6x today. This future PE is lower than the current PE for the US Software industry at 33.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

WM Technology Future Earnings Per Share Growth

Risks

• The regulatory environment for the cannabis industry remains challenging, with ongoing issues such as inaction from regulators, overtaxation, and competition from unregulated hemp, which could hinder revenue growth and profitability.
  
• Newly imposed tariffs increase operating costs for clients, leading to margin compression at a time when consumers are becoming more price-sensitive, potentially impacting overall earnings and financial stability.
  
• Declining retail prices and lack of regulatory relief on operating costs in mature markets are reducing cash flow for clients, affecting their purchasing power for services, which could negatively impact WM Technology's revenue.
  
• Average monthly revenue per paying client declined due to persistent industry challenges, including pricing pressures and consolidation that limit clients' marketing budgets, potentially affecting future revenue streams.
  
• The 3% rise in GAAP operating expenses, driven by an increase in nonrecurring G&A expenses, despite efforts to manage costs, could affect net margins and financial flexibility.

Valuation

• The analysts have a consensus price target of $2.61 for WM Technology based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $244.3 million, earnings will come to $42.4 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $1.12, the analyst price target of $2.61 is 57.1% 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.