Automation And Cloud Lending Will Shape Future Financial Services

Key Takeaways

• Expanding cloud-based, AI-driven solutions and workflow automation support MeridianLink's recurring revenues, customer retention, and up-sell opportunities.
  
• Regulatory complexity and digitization trends drive adoption of MeridianLink's platform, positioning it for sustained growth and increased operational leverage.
  
• Heavy dependence on legacy clients, vulnerable revenue sources, and slow product innovation could constrain growth as market consolidation and digital competitors intensify pressure on margins and earnings.

Catalysts

A software-as-a service company, provides software solutions for banks, credit unions, mortgage lenders, specialty lending providers, and consumer reporting agencies in the United States.

• Ongoing digital transformation in financial services and rising demand for automated, cloud-based lending solutions are driving increased adoption of MeridianLink's platform; continued expansion of their integrated product suite and improvements in digital account opening and workflow automation are expected to support recurring subscription revenue and ARR growth.
  
• Growing regulatory complexity and compliance burdens are pushing more financial institutions, especially mid-market banks and credit unions, to adopt advanced platforms like MeridianLink One, benefiting the company as a critical software partner and driving cross-sell/up-sell activity, which should continue to expand average contract value and net revenue retention rates.
  
• Enhanced product innovation-including AI-powered features, workflow automation, and faster account/loan onboarding-positions MeridianLink to capture greater share as financial institutions seek data-driven decision tools and more personalized digital experiences, supporting future top-line growth and margin expansion as adoption deepens.
  
• High customer retention, reflected in strong NRR and long-term contracts, combined with recent growth in bookings from larger financial institutions and robust cross-selling momentum, improves visibility into sustained earnings growth, with operational leverage likely to contribute to improved net margins over time.
  
• Disciplined investment in R&D, go-to-market initiatives, and targeted M&A-backed by a strong balance sheet-positions MeridianLink to accelerate innovation and market penetration, potentially driving faster revenue acceleration and scaled EBITDA growth as industry digitization continues.

MeridianLink Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MeridianLink's revenue will grow by 5.4% annually over the next 3 years.
• Analysts are not forecasting that MeridianLink will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate MeridianLink's profit margin will increase from -9.1% to the average US Software industry of 13.2% in 3 years.
• If MeridianLink's profit margin were to converge on the industry average, you could expect earnings to reach $49.6 million (and earnings per share of $0.61) by about July 2028, up from $-29.2 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 40.3x on those 2028 earnings, up from -43.6x 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 1.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.91%, as per the Simply Wall St company report.

MeridianLink Future Earnings Per Share Growth

Risks

• The company's long-term revenue growth remains heavily reliant on Active Contract Value (ACV) releases and recurring cross-sell/upsell to existing clients, but executive commentary highlighted uncertainty in underlying transaction volumes-especially in auto lending, where Q1 strength was attributed to one-time demand pull-forward, suggesting risk of volume stagnation or decline that may cap revenue growth.
  
• MeridianLink's core customer base centers on community banks and credit unions; ongoing consolidation among these smaller financial institutions, potentially accelerated by a friendlier regulatory stance, could shrink the company's overall addressable market and limit top-line growth, as lost customers from mergers are not always offset by gains from acquirers.
  
• The platform's data verification solutions experienced a significant revenue decline (down 15% YoY), mostly due to a major customer downsell in the mortgage vertical, exposing a vulnerability to concentrated revenue sources and highlighting the risk of further contract renegotiations, pricing pressure, or commoditization as larger software vendors and fintech entrants offer similar solutions, threatening margins and recurring revenue streams.
  
• MeridianLink faces growing pressure to accelerate investments in product innovation-specifically automation, digital interfaces, and AI-to stay competitive against challenger banks, universal banks, and next-gen fintech platforms; this need for higher R&D and go-to-market spend will drive up expenses and is expected to cause EBITDA margin contraction in the second half of the year and potentially longer, which could impact earnings growth and profitability.
  
• Management acknowledges that customer preferences are shifting toward more integrated, end-to-end digital banking ecosystems; unless MeridianLink continues to make substantial investments and successfully integrates partner and M&A offerings, its standalone or less-comprehensive modules risk losing competitiveness, which could stall ARR growth and limit increases in average revenue per user, weighing on long-term revenue and net margin expansion.

Valuation

• The analysts have a consensus price target of $19.083 for MeridianLink 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 $24.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $374.6 million, earnings will come to $49.6 million, and it would be trading on a PE ratio of 40.3x, assuming you use a discount rate of 8.9%.
• Given the current share price of $16.45, the analyst price target of $19.08 is 13.8% 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.