AI Security And Data Protection Tailwinds Will Support Stronger Long Term Potential

Catalysts

About N-able

N-able provides AI-powered cybersecurity, data protection and IT management software to managed service providers and mid-market customers.

What are the underlying business or industry changes driving this perspective?

• Rising cybersecurity threat activity, including AI driven attacks and compliance pressure, is pushing more small and midsized organizations to adopt full-stack security operations centers. N-able’s AI powered SOC and XDR offerings are already seeing strong net new ARR contribution, which directly supports revenue and ARR growth.
• The broad shift by SMEs and enterprises toward consolidating multiple point tools into single platforms is aligning with N-able’s unified endpoint management, security operations and data protection bundle. This can increase average ARR per customer and support mix toward larger accounts that have historically shown higher retention and contribution to net revenue retention.
• Growing data volumes and ransomware risk are increasing demand for data protection. N-able has crossed US$200m of ARR and is adding new billable services such as Disaster Recovery as a Service and Google Workspace coverage, which expands the addressable market and can support higher overall revenue and ARR while leveraging existing infrastructure to support margins.
• Broad adoption of AI in IT operations is creating appetite for workflow automation and AI assistants. N-able’s N-zo in product AI workflow assistant, along with AI embedded across its platform, is aimed at reducing customer labor needs and ticket volumes, which can support pricing power and premium SKUs and in turn benefit revenue and net margins.
• Ongoing digital evolution of SMEs and expansion of managed service providers into upmarket and co managed enterprise contracts are increasing demand for channel led cybersecurity and IT platforms. N-able’s growing VAR motion and stronger upmarket penetration, where customers over US$50,000 ARR now represent 61% of total ARR, can support sustained ARR growth and a higher contribution from larger, more profitable accounts to earnings.

Assumptions

This narrative explores a more optimistic perspective on N-able compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming N-able's revenue will grow by 9.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.3% today to 11.5% in 3 years time.
• The bullish analysts expect earnings to reach $76.2 million (and earnings per share of $0.4) by about March 2029, up from -$17.0 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 32.3x on those 2029 earnings, up from -55.1x today. This future PE is greater than the current PE for the US Software industry at 27.0x.
• The bullish analysts expect the number of shares outstanding to decline by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.79%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• AI is central to N-able's pitch, but the earnings call also highlights industry debate about whether new AI tools and low code platforms could replace existing software workflows. If customers increasingly rely on generic AI tools instead of N-able's embedded AI capabilities, that could pressure demand for premium SKUs and limit the ability to expand average ARR per customer, which would likely weigh on revenue growth and earnings.
• The company is leaning heavily into its AI-powered security operations offering and the Adlumin acquisition, including separating software and service and targeting a largely greenfield market where over 70% of new opportunities are first time security operations buyers. If this emerging category matures more slowly than management expects or competing vendors capture these greenfield accounts, N-able may see weaker cross sell, lower net revenue retention and slower ARR expansion, which would directly affect revenue and net margins.
• N-able is investing in new products such as Disaster Recovery as a Service, Google Workspace coverage and the N-zo AI assistant, with plans to extend AI agents across most offerings. If customer adoption of these new SKUs is slower than anticipated or pricing power does not materialize, the company could end up with higher R&D and capitalized development costs without a matching uplift in ARR, which would pressure net margins and earnings.
• The business model depends on channel partners, particularly managed service providers and value added resellers, to reach small and midsized organizations and push broader portfolio adoption. The call notes incremental spending on field reps, channel account managers and events to deepen that reach. If MSPs and VARs face their own labor constraints, compliance burdens or weaker end customer demand, they may not prioritize N-able's full stack, which would limit upmarket penetration, reduce mix shift toward larger customers and weigh on revenue and earnings.
• Management is using debt and a larger credit facility to fund share repurchases and leave room for further M&A, after already integrating Adlumin and adding an India R&D center. If future acquisitions or international expansion are harder to integrate than Adlumin or synergies are slower to appear, N-able could face higher interest costs, integration expenses and operational complexity without equivalent ARR contribution, which would pressure free cash flow, net margins and ultimately earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for N-able is $10.0, which represents up to two standard deviations above the consensus price target of $7.35. This valuation is based on what can be assumed as the expectations of N-able'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 $10.0, and the most bearish reporting a price target of just $5.25.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $664.4 million, earnings will come to $76.2 million, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $4.98, the analyst price target of $10.0 is 50.2% 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.