Digital Transformation And Cloud Adoption Will Expand Opportunities

Key Takeaways

• ServiceNow partnership and technology investments may drive faster-than-expected global growth and margin expansion beyond analyst forecasts.
  
• Rising demand for independent IT support positions Rimini Street to win larger, longer-term contracts and increase resilience against market volatility.
  
• Shrinking on-premises demand, vendor constraints, costly litigation, product phase-outs, and slow innovation threaten Rimini Street's future growth, margins, and business stability.

Catalysts

Provides enterprise software products, services, and support.

• While analyst consensus expects new partnerships like ServiceNow to merely drive incremental sales and margin gains, the true impact could be transformative, with the ServiceNow alliance accelerating sales force leverage and new logo velocity, meaningfully boosting both recurring revenue and global market share well above current expectations by 2026-2027.
  
• Analysts broadly agree that cost optimization and operational efficiency will support better margins, but Rimini Street's scaled investments in automation, AI-driven support, and offshore engineering could yield structurally higher gross margins and double-digit non-GAAP operating margins, significantly expanding earnings power beyond the consensus scenario.
  
• Demand for cost optimization is intensifying globally amid persistent IT budget scrutiny and deglobalization, positioning Rimini Street for outsized client wins in both the public and private sector-including the still-untapped multibillion-dollar U.S. federal government market-potentially creating a multi-year step change in addressable market and top-line growth.
  
• Long-term trends toward cloud adoption, hybrid IT environments, and vendor decoupling are catalyzing record complexity and dissatisfaction with OEM lock-in, uniquely favoring Rimini Street as the leading independent, agnostic support provider-unlocking major cross-sell, upsell, and customer retention tailwinds which should drive superior revenue durability.
  
• With a strong cash position, proven ability to finance extended contract terms, and growing backlog of noncancelable business, Rimini Street is positioned to absorb macro shocks, secure larger and longer client relationships, and deliver enhanced earnings stability, which the market is currently underestimating.

Rimini Street Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Rimini Street compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Rimini Street's revenue will grow by 2.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -8.0% today to 23.9% in 3 years time.
• The bullish analysts expect earnings to reach $111.0 million (and earnings per share of $1.18) by about July 2028, up from $-34.2 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 7.7x on those 2028 earnings, up from -12.5x 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 1.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.49%, as per the Simply Wall St company report.

Rimini Street Future Earnings Per Share Growth

Risks

• The ongoing global acceleration of cloud adoption and migration to SaaS solutions by enterprises reduces Rimini Street's addressable market for on-premises third-party support, as reflected by the year-over-year decrease in annualized recurring revenue of 4.7 percent, raising serious doubts about the company's ability to grow long-term revenues.
  
• Major software vendors like Oracle and SAP continue to bundle support and maintenance into direct cloud contracts and aggressively limit third-party access, making it increasingly difficult for Rimini Street to acquire and retain large enterprise contracts, threatening both future revenue and earnings growth.
  
• Rimini Street's decision to wind down support for Oracle's PeopleSoft-a product line comprising 7 percent of its Q1 2025 revenue-will create ongoing near-term and potentially long-term headwinds to both revenue and deferred revenue, as this business cannot be replaced easily due to customer concentration and lumpy contract attrition.
  
• Ongoing and potentially escalating litigation costs with Oracle persist as a structural risk, threatening net margins and profit stability, especially given the company's decision to suspend forward guidance pending legal clarity, which also increases investor uncertainty.
  
• The rapid industry adoption of automation, AI-driven self-service, and migration to recurring cloud-based subscription models erodes the need for third-party maintenance, pressuring the company to innovate quickly despite comparatively limited R&D investment, which may result in greater earnings volatility and margin compression.

Valuation

• The assumed bullish price target for Rimini Street is $7.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Rimini Street'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 $7.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $464.2 million, earnings will come to $111.0 million, and it would be trading on a PE ratio of 7.7x, assuming you use a discount rate of 8.5%.
• Given the current share price of $4.65, the bullish analyst price target of $7.0 is 33.6% 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.