SaaS Transformation And AI Will Secure Future Resilience

Key Takeaways

• Transition to a SaaS model and AI-driven platform enhancements are boosting recurring high-margin revenue, supporting sustainable earnings growth and top-line expansion.
  
• Strong customer retention and a growing installed base create a powerful network effect, providing operating leverage and positioning for future profitability and ecosystem growth.
  
• Shifting from hardware to SaaS revenue, operational inefficiencies, execution risks, rising competition, and macroeconomic headwinds threaten growth, margins, and long-term profitability.

Catalysts

An enterprise real estate technology company, provides management software and applications to rental property owners and operators, property managers, homebuilders, developers, and residents in the United States and internationally.

• The strong ongoing shift toward a SaaS/subscription revenue model is leading to a higher proportion of recurring, predictable, and high-margin revenue (SaaS now 37% of total revenue and growing). As SaaS margins are ~70% and recurring revenues are expanding, this transition should boost gross margins, cash flow stability, and ultimately support sustainable earnings growth.
  
• Expanding platform capabilities (notably AI and enhanced IoT/data analytics) are increasing the value delivered to customers, driving higher ARPU for new bookings ($8.21 vs. $5.66 deployed base) and supporting cross-sell/up-sell opportunities within the large and growing installed base. This is expected to drive top-line growth and margin expansion.
  
• The accelerating adoption of smart property technologies within multifamily and urban housing is increasing the addressable market for SmartRent's offerings. The company's retrofit-friendly solutions and demonstrated ROI for property managers position it to capitalize on this broad, secular demand, supporting future revenue growth.
  
• Cost structure reset, with $30 million in annualized savings, and operational efficiency gains (workforce optimization, automation, procurement) provide significant operating leverage. This positions SmartRent for a rapid improvement in net margins and free cash flow as growth resumes with a leaner baseline.
  
• The large installed base (850,000 units, 3 million devices) and exceptionally high customer stickiness (net revenue retention >100%, churn <0.1%) create a network effect and foundation for ecosystem stickiness, enabling future revenue growth, higher lifetime value, and enhanced profitability through upselling and platform expansion.

SmartRent Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SmartRent's revenue will grow by 11.3% annually over the next 3 years.
• Analysts are not forecasting that SmartRent will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SmartRent's profit margin will increase from -46.5% to the average US Electronic industry of 8.8% in 3 years.
• If SmartRent's profit margin were to converge on the industry average, you could expect earnings to reach $19.0 million (and earnings per share of $0.13) by about August 2028, up from $-72.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.6x on those 2028 earnings, up from -3.0x today. This future PE is lower than the current PE for the US Electronic industry at 23.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.06%, as per the Simply Wall St company report.

SmartRent Future Earnings Per Share Growth

Risks

• The company's long-term revenue growth is being negatively impacted by the transition away from one-time bulk hardware sales, resulting in a significant near-term revenue decline (down 21% YoY), which may indicate challenges in ramping up recurring SaaS revenue fast enough to offset lost hardware sales, potentially impacting overall revenue and delaying profitability.
  
• Gross margins and net earnings are pressured by the ongoing need for major cost reduction initiatives (staffing cuts, workflow optimizations, severance costs), reflecting operational inefficiencies and possible difficulty scaling the business sustainably, which may indicate long-term challenges in achieving operating leverage.
  
• Reliance on expanding the installed base and entering new, unproven segments to drive SaaS growth introduces execution risk; if the company cannot convert enough new and existing customers to higher ARPU SaaS offerings or fails to win in new markets, future revenue growth and margin expansion could be limited.
  
• Increasing competition from both incumbent technology firms (Amazon, Google/Nest, ADT) and in-house IoT adoption by property developers might compress pricing and make differentiation more difficult, threatening SmartRent's ability to maintain or expand gross margins and potentially resulting in customer attrition or slowed new customer acquisition.
  
• Industry-wide headwinds such as tighter macroeconomic conditions (higher interest rates, housing investment slowdown), the risk of commoditization/standardization in smart home hardware, and rising regulatory costs (cybersecurity/data privacy/compliance) could suppress spending by property owners and increase SmartRent's costs, impacting both revenue and net earnings over the long term.

Valuation

• The analysts have a consensus price target of $1.65 for SmartRent 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 $2.0, and the most bearish reporting a price target of just $1.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $214.4 million, earnings will come to $19.0 million, and it would be trading on a PE ratio of 16.6x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $1.17, the analyst price target of $1.65 is 29.1% 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.