Centralizing Machine Learning And Expanding MiVIP Will Strengthen Future Prospects

Key Takeaways

• Strategic focus on enhancing operational efficiency and expanding MiVIP platform is set to drive sustainable revenue and boost net margins.
  
• Centralizing machine learning and expanding Check Fraud Defender utilization are expected to accelerate innovation, increase SaaS revenue, and enhance competitive position.
  
• Revenue variability from SaaS and software sales, lengthy sales cycles, and pricing pressures on identity verification products challenge financial stability and growth.

Catalysts

Provides mobile image capture and digital identity verification solutions worldwide.

• Mitek's focus on enhancing operational excellence and strengthening foundational capabilities is expected to position the company for durable and profitable revenue growth in fiscal '26 and beyond. This strategic alignment is anticipated to improve operational efficiencies and support organic revenue growth and free cash flow generation.
  
• The expansion and integration of the MiVIP identity platform are critical growth drivers. The increased mix of higher-value transactions and improvements in unit economics are set to lower costs and contribute to growing net margins, with the potential to significantly boost revenue from identity solutions.
  
• The Check Fraud Defender (CFD) is experiencing considerable growth, with annual contract value (ACV) approaching $12 million. As CFD expands its data network, significant untapped growth opportunities exist that could boost SaaS revenue and support higher earnings.
  
• Mitek's strategic realignment of R&D resources to centralize machine learning capabilities and foster cross-team collaboration is expected to accelerate innovation and technological integration, enhancing competitive positioning and supporting revenue growth through advanced product offerings.
  
• The expectation of a substantial expansion of SaaS revenue, which aims to account for nearly half of total revenue in fiscal '26, is expected to drive overall revenue growth while improving net margins due to the higher-margin nature of the SaaS business model.

Mitek Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mitek Systems's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 8.5% in 3 years time.
• Analysts expect earnings to reach $18.1 million (and earnings per share of $0.38) by about March 2028, up from $4.5 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 36.7x on those 2028 earnings, down from 90.6x today. This future PE is greater than the current PE for the US Software industry at 30.6x.
• Analysts expect the number of shares outstanding to decline by 3.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

Mitek Systems Future Earnings Per Share Growth

Risks

• Fluctuations in SaaS transaction volumes and timing of software license sales could lead to quarter-to-quarter revenue variability, affecting the predictability and stability of earnings.
  
• Mobile deposit deal timing and associated renewal timing could contribute to uneven revenue phasing, impacting visibility into short-term revenue trends and overall financial planning.
  
• The sales cycle for solutions like Check Fraud Defender can be lengthy, taking over a year for some financial institutions, which could delay anticipated revenue growth and pressure short-term financial results.
  
• The restructuring costs related to operational integration highlight ongoing internal adjustments that could temporarily strain resources or disrupt efficiency, potentially impacting margins.
  
• Potential pricing pressures on identity verification products could affect revenue growth if not offset by sufficient transaction volume increases or successful client migrations to higher-value platforms like MiVIP.

Valuation

• The analysts have a consensus price target of $13.1 for Mitek 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 $15.0, and the most bearish reporting a price target of just $10.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $212.3 million, earnings will come to $18.1 million, and it would be trading on a PE ratio of 36.7x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $8.93, the analyst price target of $13.1 is 31.8% 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.