Digital Transformation And Cybersecurity Will Reshape Markets Despite Risks

Key Takeaways

• Rapid shift to high-margin subscription services, strong recurring revenue growth, and deepening bank relationships suggest meaningful profit and margin upside versus expectations.
  
• Robust cash generation and a debt-free balance sheet enable flexibility for dividends, buybacks, and strategic security acquisitions to boost earnings and innovation.
  
• Reliance on legacy products and limited new customer growth, combined with rising competition and regulatory burdens, threaten profitability and long-term revenue stability.

Catalysts

Designs, develops, and markets digital solutions for security, authentication, identity, electronic signature, and digital workflow products in the Americas, Europe, the Middle East, Africa, and the Asia Pacific regions.

• While analyst consensus expects margin expansion from the SaaS transition, the rapid acceleration in high-margin subscription growth-now outpacing hardware decline-and the company's record 36% adjusted EBITDA margin signal the potential for OneSpan to emerge as one of the most profitable mid-cap security SaaS companies, driving both net margin and earnings meaningfully higher than current forecasts.
  
• Analysts broadly agree that software and services revenue mix will steadily lift margins, but the pace and resilience of recurring Digital Agreements growth (13% subscription growth, 12% ARR increase), combined with continued cross-sell and upsell momentum in large financial institutions, point to revenue and gross margin upside that is likely being underestimated.
  
• With global digital transformation driving demand for secure digital onboarding, identity verification, and mobile-first authentication across banking, healthcare, and government, OneSpan's expanding portfolio and penetration in top-tier global banks position it to capture outsized market share and deliver sustained double-digit revenue growth over the long-term.
  
• OneSpan's substantial cash generation, debt-free balance sheet, and new recurring dividend program create the flexibility to drive further EPS growth through share buybacks, special dividends, and targeted AI
• or security-focused acquisitions that could rapidly augment both revenue and technological capabilities.
  
• As regulatory mandates and cybersecurity threats intensify globally, OneSpan's leadership in adaptive authentication and anti-fraud solutions-coupled with strong integration partnerships across banking and cloud ecosystems-could unlock accelerated multi-year contract wins, propelling ARR growth and stabilizing long-term cash flows.

OneSpan Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on OneSpan compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming OneSpan's revenue will grow by 3.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 24.0% today to 17.8% in 3 years time.
• The bullish analysts expect earnings to reach $48.2 million (and earnings per share of $1.0) by about July 2028, down from $58.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, up from 9.9x today. This future PE is lower than the current PE for the US Software industry at 42.7x.
• Analysts expect the number of shares outstanding to grow by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

OneSpan Future Earnings Per Share Growth

Risks

• The ongoing industry-wide shift from hardware-based authentication to cloud-native, software-only solutions is resulting in declining hardware and maintenance revenues for OneSpan, and there is a risk that software subscription growth will not compensate quickly enough, potentially leading to sustained top-line revenue decline in the coming years.
  
• OneSpan's growth has been primarily driven by expansion of existing contracts rather than significant new customer acquisition, so slower-than-expected adoption of next-generation products or inability to gain new logos amid intensifying competition could constrain revenue growth and net retention rates.
  
• Market consolidation in the fintech and cybersecurity space favors larger players with broader platforms and greater resources, which could make it increasingly challenging for OneSpan to win business, attract enterprise clients, and maintain pricing power, thereby putting net margins and long-term earnings at risk.
  
• The proliferation of open-source security solutions and rapid technological shifts toward biometrics and decentralized identities threaten to commoditize OneSpan's core offerings, leading to downward price pressure and the potential for costly pivots in R&D, which may compress both revenues and net margins.
  
• Expanding cybersecurity regulations and the global movement toward sovereign data requirements and digital protectionism create persistent compliance burdens and operational complexity, particularly for cross-border operations, increasing overhead costs and potentially limiting OneSpan's global growth and profitability.

Valuation

• The assumed bullish price target for OneSpan is $23.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of OneSpan's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $15.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $270.0 million, earnings will come to $48.2 million, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of $15.11, the bullish analyst price target of $23.0 is 34.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.