Global Expansion, Generative AI, And Snowflake Partnership Will Drive Future Success

Key Takeaways

• Strategic global expansion, upselling, and partnerships position the company for potential revenue growth and improved margins.
  
• Reinvestment in growth and technology, including AI, aims to boost efficiency and future revenue while maintaining margins.
  
• Dependence on product innovation and international expansion introduces risks to revenue consistency and growth; partnerships and agreements pose potential constraints on earnings and cash reserves.

Catalysts

Develops and provides a Software-as-a-Service (SaaS) solution for automated investment data aggregation, reconciliation, accounting, and reporting services to insurers, investment managers, corporations, institutional investors, and government entities in the United States and internationally.

• The expansion into international markets, with strategic hires and new offices, indicates potential growth in revenue from global expansion efforts.
  
• Selling to current clients with high Net Promoter Scores, focused relationship teams, and new product integration suggests increased future revenue and improved net margins from upselling.
  
• Leveraging Generative AI for internal efficiency and client interaction offers potential growth in net margins through cost reductions and enhanced service delivery.
  
• Strategic partnerships and M&A, such as the alliance with Snowflake, could drive both organic and inorganic growth, positively impacting revenue and potentially earnings.
  
• The company's plan to aggressively reinvest in growth and operational improvements indicates future revenue acceleration while maintaining or expanding EBITDA margins.

Clearwater Analytics Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clearwater Analytics Holdings's revenue will grow by 19.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 22.6% in 3 years time.
• Analysts expect earnings to reach $163.8 million (and earnings per share of $0.65) by about February 2028, up from $663.0 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 69.6x on those 2028 earnings, down from 10349.1x today. This future PE is greater than the current PE for the US Software industry at 41.9x.
• Analysts expect the number of shares outstanding to grow by 3.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Clearwater Analytics Holdings Future Earnings Per Share Growth

Risks

• The company's reliance on new product innovations for future growth could face challenges if these products fail to mature as expected, impacting future revenue streams and net revenue retention.
  
• The push to expand into international markets introduces execution risks and potential inefficiencies that may not translate as expected, potentially affecting revenue growth and net margins.
  
• The recent interest rate environment has provided a tailwind to AUM and ARR growth, but future volatility or downward rate adjustments could remove this benefit, impacting revenue consistency.
  
• The termination of the Tax Receivable Agreement introduces cash outflows and may limit cash reserves for strategic initiatives, potentially constraining future earnings growth.
  
• Reliance on integration and partnerships, like with Snowflake, while positive, also introduces dependency risks that could impact operational costs and earnings if expectations are not realized.

Valuation

• The analysts have a consensus price target of $33.667 for Clearwater Analytics Holdings 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 $40.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $723.0 million, earnings will come to $163.8 million, and it would be trading on a PE ratio of 69.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $29.08, the analyst price target of $33.67 is 13.6% 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.