Cloud Migration And Reseller Expansion Will Redefine Digital Communications

Key Takeaways

• Expanding business subscription revenue and product upgrades are improving recurring income, margins, and earnings visibility, fueled by demand for cloud and POTS-replacement solutions.
  
• Growth in targeted industries and geographies, coupled with disciplined innovation and SaaS focus, strengthens Ooma's long-term multi-year revenue and profitability potential.
  
• Ooma's limited scale, hardware dependence, and slow new product impact expose it to competition and margin pressure in a consolidating, rapidly evolving communications market.

Catalysts

Provides communications services and related technologies for businesses and consumers in the United States and Canada.

• The accelerating adoption of cloud-based communication solutions by SMBs, highlighted by Ooma's increasing mix of business subscription revenue (now 62% of total), positions the company to benefit from the ongoing migration away from legacy landline/PBX systems, supporting recurring revenue growth and improving long-term earnings visibility.
  
• Heightened demand for Ooma's AirDial POTS replacement solution, evidenced by the launch with Comcast and rapid expansion of reseller partnerships (now over 30), provides a forward catalyst as large-scale deployments ramp, which is likely to drive subscription revenue growth and operating leverage as installations increase.
  
• Ooma's consistent annual ARPU growth (up 4% YoY, with 61% of new Ooma Office users opting for higher-priced Pro tiers) reflects successful enhancement of its product portfolio, and continued penetration into higher-value customer segments should expand gross margins and net margins over time.
  
• Long-term growth runway exists in key verticals (e.g., hospitality, dental/medical, insurance) and geographies, as seen by momentum in hotel deployments (now serving 500+ hotels and a growing Marriott pipeline), underlining the incremental revenue opportunity from both new and cross-sold services supporting multi-year earnings potential.
  
• Strong free cash flow generation and disciplined reinvestment into R&D and product integration (including 2600Hz/CPaaS capabilities and AI-driven features) better positions Ooma to capture growth from the digital transformation and remote/hybrid work trends, while shifting its revenue mix further toward sticky, higher-margin SaaS subscriptions (enhancing net margin and long-term earnings power).

Ooma Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ooma's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.9% today to 5.2% in 3 years time.
• Analysts expect earnings to reach $15.9 million (and earnings per share of $0.76) by about July 2028, up from $-4.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $19.9 million in earnings, and the most bearish expecting $1.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.6x on those 2028 earnings, up from -67.8x 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 2.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Ooma Future Earnings Per Share Growth

Risks

• Ooma's limited scale and low brand recognition compared to larger, more established unified communications and VoIP vendors could constrain its ability to win large enterprise customers, limiting potential revenue growth and margin expansion as industry competition intensifies.
  
• The company's business remains significantly exposed to hardware sales, such as AirDial devices, which are subject to cyclical demand and risks of commoditization amid industry-wide transitions to fully cloud-native, mobile-first solutions; this dependence threatens long-term gross margins and recurring revenue stability.
  
• Despite current growth in new verticals and through reseller partnerships, the slow pace of material revenue contribution from products like AirDial and 2600Hz-and the company's limited international expansion efforts-may restrict the overall addressable market, capping long-term top-line growth and earnings potential.
  
• Ooma faces risks from ongoing consolidation in the UCaaS and communications platform industry, where larger players and consolidators could pressure smaller providers, leading to customer churn and downward pricing, negatively impacting subscription revenues and net margins.
  
• The rise of integrated platforms (with bundled communications, collaboration tools, and AI-driven automation) and the increasing prevalence of free or low-cost alternatives may erode the demand for Ooma's current standalone solutions, posing a risk to future revenue, ARPU, and long-term profitability unless substantial additional investment in product innovation is made.

Valuation

• The analysts have a consensus price target of $17.875 for Ooma 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 $20.0, 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 $307.1 million, earnings will come to $15.9 million, and it would be trading on a PE ratio of 42.6x, assuming you use a discount rate of 8.0%.
• Given the current share price of $12.06, the analyst price target of $17.88 is 32.5% 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.