MiVIP Integration And Fraud Solutions Will Boost Future Operational Efficiency

Key Takeaways

• Mitek's strategies for SaaS revenue growth and automation aim to boost stability, improve unit economics, and enhance margins.
  
• Investments in fraud solutions and technological integration are expected to mitigate risks and drive profitable growth through increased operational efficiencies.
  
• Executive turnover and acquisitions strain Mitek's teams, risking inefficiencies and higher expenses, while integration challenges and pressures threaten margin and revenue growth.

Catalysts

Provides mobile image capture and digital identity verification solutions worldwide.

• Mitek's experienced leadership and focus on operational discipline and unified strategies are expected to drive profitable organic growth, impacting future revenue and margins positively.
  
• The investment in comprehensive fraud solutions, including their identity side and check fraud defender products, is anticipated to mitigate identity-related cybersecurity risks and boost revenue and organic growth.
  
• Technological integration and the transition to a scalable platform, such as MiVIP, are poised to improve operational efficiencies, which should enhance net margins.
  
• The expansion towards a higher percentage of SaaS revenue to almost half of the total revenue by fiscal 2026 aims to increase predictability and stability, positively impacting earnings.
  
• Mitek's strategic focus on reducing reliance on costly manual transactions and increasing automation is expected to further improve unit economics and expand net margins.

Mitek Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mitek Systems's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 9.2% in 3 years time.
• Analysts expect earnings to reach $20.1 million (and earnings per share of $0.53) by about February 2028, up from $3.3 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 31.7x on those 2028 earnings, down from 144.6x today. This future PE is lower than the current PE for the US Software industry at 43.2x.
• Analysts expect the number of shares outstanding to decline by 4.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

Mitek Systems Future Earnings Per Share Growth

Risks

• The rapid rate of executive turnover and major acquisitions over recent years has placed considerable strain on Mitek's accounting, finance, and legal teams, which could lead to inefficiencies and increased operating expenses.
  
• Operational integration challenges, such as technological integration and achieving cost efficiencies, might take longer than expected to implement, delaying improvements in net margins and earnings.
  
• The identity solutions segment, which has historically been cash-consuming, needs to reach $80 million to $85 million in product revenue to become margin accretive; failure to achieve this could continue to dilute overall margins.
  
• Continued pricing pressure in the Mobile Verify product segment and challenges with sales execution noted in previous quarters could lead to stagnant or declining identity product revenues, impacting overall earnings growth potential.
  
• There is a risk of slower-than-expected adoption rates for new solutions like Check Fraud Defender and Digital Fraud Defender, which could result in not reaching desired levels of organic revenue growth and margin expansion.

Valuation

• The analysts have a consensus price target of $12.7 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 $9.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $217.4 million, earnings will come to $20.1 million, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $10.48, the analyst price target of $12.7 is 17.5% 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.