Digital Adoption And Online Safety Trends Will Drive Strong Long Term Earnings Improvement

Catalysts

About Qoria

Qoria provides safety and wellbeing software that protects children online across schools and families globally.

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

• Accelerating digital adoption in education, combined with rising regulatory and community focus on student online safety, is expanding K-12 budgets for monitoring and filtering tools. This is supporting sustained double digit ARR growth and higher total revenue.
• Growing parental concern over screen time, social media harms and device proliferation is driving structural demand for Qustodio. Efficient customer acquisition and upfront annual payments support faster revenue recognition and improving earnings.
• Deep integrations with large education resellers such as CDW and the expansion of B2B2C, telco and affiliate channels are multiplying distribution reach at relatively low incremental cost. This should enhance top line growth while supporting net margin expansion.
• Platform unification and cross sell of an expanding product suite into a large installed base in the U.S., U.K., Australia and New Zealand increases products per customer and average contract value. This is expected to raise ARR per customer and operating leverage.
• Improving cost efficiencies in hardware, disciplined wage growth below revenue growth and strong marketing efficiency, with every dollar of marketing generating multiple dollars of ARR, collectively support rising EBITDA margins and stronger free cash flow.

Assumptions

This narrative explores a more optimistic perspective on Qoria compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Qoria's revenue will grow by 24.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -30.5% today to 15.7% in 3 years time.
• The bullish analysts expect earnings to reach A$35.4 million (and earnings per share of A$0.03) by about December 2028, up from A$-36.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$-25.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 57.1x on those 2028 earnings, up from -20.8x today. This future PE is greater than the current PE for the AU Software industry at 34.4x.
• The bullish analysts expect the number of shares outstanding to grow by 2.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The K-12 education segment shows early signs of softer momentum, with management acknowledging that the consumer Qustodio business effectively carried the quarter while new and existing K-12 ARR contributions were lower than the prior period. If this trend persists or large deals continue to slip, long term revenue growth expectations could be disappointed and operating leverage assumptions may not materialize, pressuring earnings.
• Qustodio’s growth is heavily dependent on paid digital marketing, search terms and social platforms across multiple geographies. If customer acquisition costs structurally rise, key channels saturate or new privacy and advertising rules reduce targeting efficiency, the company may need to spend more to sustain 30 percent ARR growth, which would compress net margins and delay the pathway to higher free cash flow.
• The consumer business has structurally high churn, even after improvements from 38 percent to the mid 20s percent range, and management expects churn to spike each year around the key renewal period. If churn stabilizes at an elevated level or reverses its downward trend due to competition, product fatigue or changing parental attitudes to monitoring, lifetime value per user could weaken and long term ARR and earnings growth assumptions may prove too optimistic.
• The strategy relies on successful platform unification and cross sell into the U.K. and large U.S. school districts over several years. If product rollout is delayed, key capabilities underperform expectations or large district wins do not materialize at the scale anticipated, the uplift in products per customer and average contract value may fall short, leading to lower revenue and weaker margin expansion than forecast.
• A large and rising share of revenue and costs are denominated in foreign currencies, particularly U.S. dollars, euros and pounds. While the company already highlighted meaningful FX impacts on staff and direct costs, adverse long term currency movements could erode reported revenue growth and inflate operating expenses, reducing reported net margins and earnings relative to bullish expectations.

Valuation

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

• The assumed bullish price target for Qoria is A$1.1, which represents up to two standard deviations above the consensus price target of A$0.9. This valuation is based on what can be assumed as the expectations of Qoria's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.1, and the most bearish reporting a price target of just A$0.61.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be A$225.8 million, earnings will come to A$35.4 million, and it would be trading on a PE ratio of 57.1x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$0.56, the analyst price target of A$1.1 is 49.5% 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.