AI Mobile Platform And MyCanvass Will Revolutionize Engagement In 2025

Key Takeaways

• Phunware's AI-driven SaaS platform aims to democratize mobile app creation, enhancing customer engagement and potentially increasing revenue and margins.
  
• Strong financials enable investment in AI development and customer acquisitions, targeting federal contracts for significant long-term revenue growth.
  
• Despite improved margins and new leadership focus, Phunware faces revenue growth challenges, profitability issues, shareholder dilution risks, and high execution risks in AI ventures.

Catalysts

Provides integrated software platform that equips companies with the products, solutions, and services to engage, manage, and monetize their mobile application portfolios in the United States and internationally.

• Phunware is leveraging its experience in mobile technology to create a next-generation AI-driven SaaS platform launching in mid-2025, expected to drive significant revenue growth by democratizing mobile app creation for businesses of all sizes.
  
• The company's focus on integrating AI with mobile technology is anticipated to enhance customer engagement and operational efficiency, potentially increasing net margins as businesses adopt these innovative solutions.
  
• Phunware's strategic partnerships, such as with MyCanvass, aim to transform civic engagement, which could expand their market presence and boost future revenues through AI-powered advocacy and public sector tools.
  
• The firm's strong financial position with no debt and significant cash reserves allows continued investment in AI development and potential high-value customer acquisitions, stabilizing earnings and supporting future growth.
  
• Plans to target federal and enterprise contracts could lead to substantial revenue opportunities, providing significant growth in bookings and sales, and thus impacting overall earnings positively in the long term.

Phunware Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Phunware's revenue will grow by 39.0% annually over the next 3 years.
• Analysts are not forecasting that Phunware will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Phunware's profit margin will increase from -510.8% to the average US Software industry of 13.0% in 3 years.
• If Phunware's profit margin were to converge on the industry average, you could expect earnings to reach $839.7 thousand (and earnings per share of $0.04) by about August 2028, up from $-12.3 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 191.3x on those 2028 earnings, up from -4.4x today. This future PE is greater than the current PE for the US Software industry at 35.0x.
• Analysts expect the number of shares outstanding to grow by 1.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Phunware Future Earnings Per Share Growth

Risks

• Despite a significant increase in software subscriptions and service bookings year-over-year, Phunware's net revenues decreased from $3.9 million to $2.6 million for the first nine months of 2024, which could impact the company's ability to achieve sustainable revenue growth in the future.
  
• While Phunware's gross margin improved, the company still reported a non-GAAP adjusted EBITDA loss of $7.3 million year-to-date, indicating ongoing challenges in achieving profitability and potentially impacting net margins and earnings.
  
• The company has heavily relied on financing from its at-the-market (ATM) equity program, significantly boosting cash reserves; however, frequent equity sales could lead to shareholder dilution, affecting earnings per share.
  
• Although Phunware has ambitions in the AI space and plans to launch a SaaS platform, execution risks remain high due to the need for substantial scale and volume to achieve meaningful revenue, especially with the competitive landscape in AI.
  
• The company is undergoing a transformation with a new leadership focus, including a search for a new CFO, which introduces some leadership and strategic execution risks that could impact overall financial performance and operational stability.

Valuation

• The analysts have a consensus price target of $6.0 for Phunware 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 $12.5, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.4 million, earnings will come to $839.7 thousand, and it would be trading on a PE ratio of 191.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of $2.68, the analyst price target of $6.0 is 55.3% 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.