AI-Powered Copilot And Agents Will Improve Future Prospects

Key Takeaways

• Strategic investments in AI and platform connectivity aim to enhance efficiency, reduce risk, and drive long-term growth and revenue expansion.
  
• Expansion and execution initiatives suggest potential revenue growth through improved sales efficiency and increased client engagement.
  
• Procore's cautious revenue growth outlook, combined with transitional sales model challenges and high expenses, may hinder short-term profitability despite innovation efforts.

Catalysts

Provides a cloud-based construction management platform and related products and services in the United States and internationally.

• Procore's continued expansion and new customer wins, especially among large enterprise accounts, suggest potential revenue growth by broadening their client base and increasing sales.
  
• The company’s investments in AI-powered innovations, such as Copilot and Agents, are expected to improve operational efficiency and reduce risk, potentially enhancing net margins.
  
• Procore's strategic platform expansions and improved connectivity aim to strengthen their market position, which could drive long-term revenue growth.
  
• The accelerated go-to-market transition is aimed at improving customer outcomes and sales efficiency, which could result in revenue expansion and margin improvements.
  
• Strong execution in early renewals and expansions indicates robust deal flow and potential future cash flow improvements, benefiting overall earnings.

Procore Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Procore Technologies's revenue will grow by 14.0% annually over the next 3 years.
• Analysts are not forecasting that Procore Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Procore Technologies's profit margin will increase from -9.2% to the average US Software industry of 11.8% in 3 years.
• If Procore Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $202.1 million (and earnings per share of $1.26) by about April 2028, up from $-106.0 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 86.2x on those 2028 earnings, up from -84.7x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• Analysts expect the number of shares outstanding to grow by 2.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Procore Technologies Future Earnings Per Share Growth

Risks

• Procore's guidance suggests a cautious outlook for 2025, with only a 12% revenue growth projected, which could imply concerns about potential obstacles in maintaining its growth momentum. This may impact overall revenue expectations.
  
• There has been acknowledgment of potential disruption during Procore's ongoing go-to-market transition, specifically regarding its new sales model and sales team coverage, which may temporarily affect sales execution and revenue generation.
  
• The higher-than-expected onetime expenses in Q4 that were moved up from fiscal '25 could signal cautious financial planning or unexpected cost adjustments, potentially impacting net margins and profitability in the short term.
  
• The note that Procore's new 'Pay' product will not be material to revenues in 2025 due to long implementation and project rollout timelines highlights potential near-term revenue headwinds despite new product innovations.
  
• Despite the significant opportunities anticipated with AI initiatives, there could still be a substantial educational process required for customers, impacting how soon Procore can capitalize on these innovations to enhance revenues and margins.

Valuation

• The analysts have a consensus price target of $86.901 for Procore Technologies 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 $110.0, and the most bearish reporting a price target of just $60.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $202.1 million, and it would be trading on a PE ratio of 86.2x, assuming you use a discount rate of 7.6%.
• Given the current share price of $59.86, the analyst price target of $86.9 is 31.1% 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.