Telecom Platform And Digital Inclusion Will Foster Market Resilience

Key Takeaways

• Increased digitalization and government support ensure stable, recurring revenue streams, offsetting market volatility and supporting long-term earnings growth.
  
• Expansion into wholesale telecom and innovative retail solutions enhances margins, operating leverage, and cross-sell opportunities across a resilient, underserved market.
  
• Heavy reliance on government subsidies, margin compression from increased competition, and execution risks with new growth initiatives threaten revenue stability, profitability, and liquidity.

Catalysts

Operates as a financial technology and telecom company in the United States.

• The expansion of affordable wireless and financial services for the unbanked/underbanked is fueling sustained demand from a large, resilient market segment, and SurgePays’ deep integration with over 9,000 and targeting up to 100,000 retail locations provides a strong pipeline for recurring transaction and activation revenue growth.
  
• Increased digitalization of commerce and government services, combined with ongoing federal and state support for digital inclusion (e.g., potential Lifeline enhancements), is expected to drive stable, long-term subsidized revenue streams, mitigating the volatility from recent ACP shutdowns and supporting future revenue and earnings stability.
  
• The shift of SurgePays from a reseller to a telecom platform and its emergence as a wholesale MVNE with direct carrier access (via the AT&T partnership) uniquely positions the company for higher-margin, recurring platform revenue, expanding net margins and underpinning long-term earnings growth.
  
• The successful launch and rapid adoption of innovative retail solutions such as “Phone in a Box” creates additional cross-sell opportunities across the full product suite, raising the average revenue per user (ARPU) and supporting topline acceleration.
  
• Recent investment in proprietary technology platforms and automation of merchant onboarding, coupled with strategic leadership appointments and disciplined cost controls, are expected to deliver greater operating leverage and improved net margins as scale is achieved.

SurgePays Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SurgePays's revenue will grow by 114.0% annually over the next 3 years.
• Analysts are not forecasting that SurgePays will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SurgePays's profit margin will increase from -136.4% to the average US Wireless Telecom industry of 10.8% in 3 years.
• If SurgePays's profit margin were to converge on the industry average, you could expect earnings to reach $42.3 million (and earnings per share of $1.92) by about July 2028, up from $-54.6 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 5.6x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the US Wireless Telecom industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 3.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

SurgePays Future Earnings Per Share Growth

Risks

• The company’s sharp revenue and gross profit decline in Q1 2025, directly tied to the sudden shutdown of the ACP (Affordable Connectivity Program) federal funding, demonstrates significant vulnerability to regulatory shifts in government subsidy programs—if similar Lifeline or other supports are reduced or eligibility tightened in the future, it poses substantial ongoing risks to revenue and cash flow stability.
  
• Fierce and ongoing price competition in the prepaid wireless sector, including competition from incumbents and more heavily capitalized new entrants, is likely to compress average revenue per user (ARPU) and net margins—SurgePays, with limited geographic and customer diversification, faces greater exposure to such industry pressures, threatening topline growth and long-term earnings potential.
  
• Transition away from lead generation services and the temporary lack of replacement revenue, as seen in the Q1 results, reflects execution risk associated with the company’s efforts to diversify and scale new products; an unsuccessful roll-out or delayed adoption of initiatives like MVNE services or Phone in a Box could impede future revenue recovery and earnings growth.
  
• The company’s ambitious target to grow from ~10,000 to 100,000 distribution locations by the end of 2026 may not materialize as planned—this target is highly dependent on successful large-scale partnerships and continued retailer buy-in; failure to achieve such rapid distribution expansion or loss of key partners could restrict addressable market growth and dampen revenue prospects.
  
• The new $6 million financing—while non-dilutive in structure—comes with a high 15% annual interest rate and conversion provisions; this adds significant financial leverage and interest expense at a time when the company is not yet profitable, heightening liquidity risk and potentially further pressuring net earnings and cash reserves if targeted cash flow improvements do not quickly materialize.

Valuation

• The analysts have a consensus price target of $9.0 for SurgePays based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $392.6 million, earnings will come to $42.3 million, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of $2.97, the analyst price target of $9.0 is 67.0% 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.