Falling ARPU Will Pressure Margins Though IoT Adoption Will Rise

Key Takeaways

• Declining revenue per user and heavy reliance on lower-value contracts may hinder top-line growth despite expanding IoT demand.
  
• Dependence on few suppliers and increasing regulatory burdens expose the company to supply chain and compliance risks, impacting profitability.
  
• Reliance on lower-value customer growth, supply chain risks, and intense IoT competition may pressure margins, revenue stability, and profitability amid rising investment needs.

Catalysts

Provides Internet of Things (IoT) services and solutions in the United States and internationally.

• While KORE's pipeline of new opportunities reached $84.6 million and closed won annual recurring revenue is increasing-signaling strong future demand from the growing adoption of IoT across industries-the company's average revenue per user per month is declining, with recent growth in connections coming from lower ARPU use cases, which may adversely affect top-line revenue growth if this trend is not offset by higher value contracts.
  
• Although KORE has demonstrated three consecutive quarters of positive free cash flow and has improved operating profitability, the company remains burdened by a persistent net loss and must contend with the potential for rising compliance and operational costs due to intensifying cybersecurity threats and stricter data privacy regulations, threatening progress toward positive sustained net earnings.
  
• While KORE is benefiting from accelerating 5G and next-gen network rollouts, supporting its expansion in connectivity and solutions, the sector faces fast-paced technological change that could require ongoing, substantial investments in infrastructure upgrades, which may pressure margins and restrict capital available for innovation.
  
• Despite the company's expansion into high-potential verticals such as connected health and industrial IoT-which increases addressable market and revenue resiliency-the heavy dependence on a limited roster of network partners and hardware suppliers exposes KORE to supply chain disruptions, as well as increased costs and possible revenue volatility, particularly in times of geopolitical or trade instability.
  
• While strategic product innovation such as Super SIM and AI initiatives could deepen customer stickiness and operational efficiency over the long term, ongoing global economic volatility and tightening enterprise budgets could slow digital transformation spending, resulting in moderated customer acquisition rates and muted recurring revenue growth in the near to medium term.

KORE Group Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on KORE Group Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming KORE Group Holdings's revenue will grow by 5.5% annually over the next 3 years.
• The bearish analysts are not forecasting that KORE Group Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate KORE Group Holdings's profit margin will increase from -26.8% to the average US Wireless Telecom industry of 12.2% in 3 years.
• If KORE Group Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $40.7 million (and earnings per share of $2.26) by about August 2028, up from $-76.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 1.9x on those 2028 earnings, up from -0.5x today. This future PE is lower than the current PE for the US Wireless Telecom industry at 22.8x.
• Analysts expect the number of shares outstanding to grow by 2.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

KORE Group Holdings Future Earnings Per Share Growth

Risks

• Average revenue per user has declined from $1 to $0.94 year-over-year, indicating that recent customer growth is coming from lower-ARPU segments, which may pressure long-term revenue growth and gross margins.
  
• The company highlights exposure to supply chain risks and global economic uncertainty, with some large customers affected by tariffs and potential project delays, which could undermine revenue predictability and lead to increased earnings volatility if uncertainty persists or worsens.
  
• IoT Connectivity gross margins decreased slightly to 60% from 60.9% due to changes in the revenue mix, and management cautions that high IoT Solutions margins in this quarter are above the historical range and are expected to normalize, suggesting limited upside to long-term net margins.
  
• While KORE touts its growing pipeline of opportunities, the reliance on expanding total connections rather than improving ARPU or extracting additional value from existing customers may result in diminishing returns and plateauing revenue as market saturation increases.
  
• The competitive and rapidly evolving IoT market, coupled with the company's need to continually invest in product innovation and infrastructure (noted in the critical milestones for 2025), could strain free cash flow and profitability if technology investments fail to yield sufficient differentiation or if operating expenses rise faster than revenues.

Valuation

• The assumed bearish price target for KORE Group Holdings is $3.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of KORE Group Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $335.0 million, earnings will come to $40.7 million, and it would be trading on a PE ratio of 1.9x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $2.28, the bearish analyst price target of $3.0 is 24.0% 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.