Global Expansion And Cloud Platforms Will Fuel Digital Policing

Key Takeaways

• Rapid international adoption and regulatory-driven expansion are expected to drive outsized recurring revenue growth and new high-margin opportunities across multiple sectors.
  
• Advanced AI development, strong partnerships, and a cloud-native portfolio position the company for increased contract values, higher renewal rates, and sustained margin improvement.
  
• SoundThinking faces revenue and margin pressures due to societal shifts, regulatory risks, customer concentration, limited international expansion, and rising operating costs.

Catalysts

A public safety technology company, provides data-driven solutions and strategic advisory services for law enforcement, security teams, and civic leadership.

• Analyst consensus expects international expansion to contribute to revenue over time, but this view understates how quickly reference deployments in Brazil and Montevideo, combined with a robust pipeline in Mexico and South Africa, could unlock a step-change in global adoption-creating multiple years of outsized ARR growth and accelerating overall revenue ahead of expectations.
  
• While the consensus highlights SafePointe's opportunity from healthcare mandates like California's AB 2975, this significantly underappreciates how the convergence of weapon detection requirements across state and federal levels could rapidly propel SafePointe into a category-defining solution for not only healthcare, but also casinos, corporate campuses and critical infrastructure-opening up new, recurring high-margin revenue streams with a national network effect.
  
• The integration of ShotSpotter with real-time drone deployments as first responders-uniquely enabled by SoundThinking's partnerships-positions the company to lead the next wave of public safety automation, dramatically increasing product stickiness and cross-sell velocity, which should sustainably expand annual contract values and drive margin expansion.
  
• The rapid advancement of SoundThinking's AI-native development processes-with major product features completed in a fraction of the time-enables unparalleled operating leverage and accelerates innovation cycles, suggesting sustained reductions in R&D spend as a percent of revenue and increasing future EBITDA margins beyond current analyst models.
  
• Intensifying regulatory scrutiny and digital evidence requirements in law enforcement, combined with SoundThinking's broadening, cloud-native SafetySmart portfolio, may catalyze a winner-takes-most dynamic-allowing the company to win long-duration, high-value contracts, drive up renewal rates, and become the essential infrastructure backbone for digital policing, with direct positive impacts on multi-year revenue visibility and free cash flow.

SoundThinking Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SoundThinking compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SoundThinking's revenue will grow by 11.0% annually over the next 3 years.
• Even the bullish analysts are not forecasting that SoundThinking will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SoundThinking's profit margin will increase from -9.7% to the average US Software industry of 13.4% in 3 years.
• If SoundThinking's profit margin were to converge on the industry average, you could expect earnings to reach $19.0 million (and earnings per share of $1.59) by about August 2028, up from $-10.1 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 23.6x on those 2028 earnings, up from -16.1x today. This future PE is lower than the current PE for the US Software industry at 36.0x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.54%, as per the Simply Wall St company report.

SoundThinking Future Earnings Per Share Growth

Risks

• Ongoing societal and political shifts toward police reform and reduced funding could reduce municipal budgets for law enforcement technology, shrinking SoundThinking's core addressable market and putting continued pressure on long-term revenue growth.
  
• Increasing concerns about data privacy and public surveillance may lead to heightened regulatory scrutiny and resistance to adoption of gunshot detection and public safety tools, potentially reducing customer acquisition and net revenue.
  
• High levels of customer concentration in municipal and law enforcement contracts make SoundThinking vulnerable to contract non-renewals or political shifts, as illustrated by the loss of the Chicago contract and RFP-driven processes like Puerto Rico, risking both revenue stability and earnings predictability.
  
• The company's limited progress in international expansion means SoundThinking remains heavily exposed to U.S.-specific economic, political, and public safety funding trends, which could limit diversification and make revenues and margins susceptible to domestic policy changes.
  
• Rising recurring hardware and service maintenance costs, combined with delayed or lumpy large contract bookings, as discussed regarding margin compression and the need for expanded servicing, could prevent sustained improvements in net margins and suppress future earnings growth.

Valuation

• The assumed bullish price target for SoundThinking is $29.22, which represents two standard deviations above the consensus price target of $21.5. This valuation is based on what can be assumed as the expectations of SoundThinking'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 $30.0, and the most bearish reporting a price target of just $19.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $142.1 million, earnings will come to $19.0 million, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $12.76, the bullish analyst price target of $29.22 is 56.3% 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.