Future Networking As A Service Expansion Will Support Long Term Multifamily Connectivity Narrative

Catalysts

About Elauwit Connection

Elauwit Connection provides fiber based internet, managed network services and networking as a service to multifamily and student housing communities across the U.S.

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

• Growing expectations for always on, property wide WiFi in multifamily and student housing support Elauwit's model of prewired, carrier grade networks. This can increase billed units over time and support higher recurring revenue visibility.
• The shift from individual resident sign ups to internet bundled into rent aligns with property owners seeking new fee income streams. This can support higher average revenue per unit and a greater share of high margin service revenue.
• The move toward NaaS, supported by the NASDAQ IPO funded balance sheet, opens up the 70% of retrofit and other properties that previously could not absorb upfront capex. This can raise the mix of long dated, higher monthly contracts and support earnings consistency.
• Expansion of a dedicated sales and marketing engine, including a Chief Growth Officer, new hires and an AI enabled marketing agency, targets a much larger funnel than prior executive led efforts. This can translate contracted units and backlog into a broader base of billing units and support gross profit levels.
• The large, fragmented addressable market of more than 12,000,000 units and the ability to scale using a central call center and contract installation teams provide operating leverage potential. This can support net margin performance as recurring service revenue becomes a larger share of total sales.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Elauwit Connection's revenue will grow by 41.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.1% today to 14.0% in 3 years time.
• Analysts expect earnings to reach $8.1 million (and earnings per share of $1.46) by about January 2029, up from $-1.6 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 11.8x on those 2029 earnings, up from -20.8x today. This future PE is lower than the current PE for the US Telecom industry at 12.4x.
• Analysts expect the number of shares outstanding to decline by 0.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The move into Networking as a Service relies heavily on Elauwit using its new NASDAQ funded balance sheet to install and own networks for the 70% of retrofit properties that did not want upfront capex. If capital becomes harder to raise or more expensive for a long period, it could limit how many projects the company can fund, which would cap billed units and slow revenue growth.
• The business model assumes that multifamily and student housing owners will keep bundling internet into rent and renewing long contracts. If owners push back on sharing monthly recurring revenue or residents return to signing up directly with large carriers, that could reduce contracted units, weaken pricing power and put pressure on both revenue and net margins over time.
• Management describes the sales funnel and new NaaS opportunities as overwhelming and not yet quantified. If the new sales and marketing engine fails to convert this long term interest into signed, economically attractive contracts, billed units may lag expectations and recurring revenue and earnings could fall short.
• The model depends on long lived, sticky contracts and a scalable call center plus contract installation teams. If service quality issues, installation delays or higher ongoing support costs persist over several years, property owners may be less willing to sign new agreements or renew existing ones, which would weigh on revenue growth and could compress gross margins.
• The company is increasing spending on project management, network engineering, sales and marketing as a public company. If this higher cost base outpaces the long term ramp of recurring service revenue from activated and billed units, adjusted EBITDA and net income could remain weak despite higher reported revenue.

Valuation

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

• The analysts have a consensus price target of $12.0 for Elauwit Connection based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $57.6 million, earnings will come to $8.1 million, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $5.14, the analyst price target of $12.0 is 57.2% 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.