On Thursday, KeyBanc Capital Markets adjusted its outlook on Alkami Technology Inc (NASDAQ: ALKT), increasing the price target to $45 from the previous $37, while maintaining an Overweight rating. The firm's decision follows Alkami's third-quarter financial performance, which surpassed Wall Street expectations and the company's own top-end guidance.
Alkami's annual recurring revenue (ARR) experienced a year-over-year growth of 24%, albeit with a slight 1% deceleration quarter-over-quarter, and fell slightly short of analyst expectations.
Alkami, a provider of cloud-based digital banking solutions, reported nine new digital banking wins, one-third of which were banks, and secured 14 renewals, an increase from 12 in the first half of 2024. The company's implementation backlog now includes 36 clients, accounting for 1.3 million users. Notably, the average revenue per user (RPU) within this backlog is $23, which is over 30% higher than the current RPU.
KeyBanc's analyst noted the firm's positive stance on Alkami's win rates and the support for the company's revenue estimates going forward. The analyst has increased the revenue and adjusted EBITDA estimates for the calendar year 2024, largely due to the third-quarter upside. For the calendar year 2025, revenue expectations have been raised based on the potential for higher monetization, while the adjusted EBITDA forecast has been slightly reduced to account for the costs associated with transitioning to in-house offshore engineering from an outsourced model.
KeyBanc continues to recommend Alkami Technology shares, citing the company's sales momentum, potential for RPU expansion, and strong growth prospects. The firm's confidence in Alkami's multi-year growth and margin expansion opportunities is reflected in the raised price target, which is set at 10.5 times the estimated calendar year 2025 revenue.
In other recent news, Alkami Technology reported robust financial performance in its Q3 earnings call, with a noteworthy 27% increase in revenue to $85.9 million and a higher than anticipated adjusted EBITDA of $8.3 million. The company added nine new clients and launched 12 on its platform, reflecting strong demand for its digital banking services. Alkami's annual recurring revenue (ARR) grew by 24% to $342 million, with registered users increasing by 15% to 19.5 million.
In terms of future expectations, Alkami anticipates a churn rate of less than 1% for 2024 and targets a 20% adjusted EBITDA margin by 2026. The company forecasts Q4 2024 revenue between $89 million and $90 million, with full-year guidance of $333.2 million to $334.2 million.
Despite a favorable environment for mergers and acquisitions, Alkami has not made any recent acquisitions. However, the company's data technology is increasingly seen as a market differentiator, with over 70% of new client wins in 2024 incorporating data and marketing products.
InvestingPro Insights
Alkami Technology's recent performance aligns with several InvestingPro metrics and tips. The company's revenue growth of 26.69% over the last twelve months and 24.93% in Q2 2024 supports KeyBanc's positive outlook on Alkami's sales momentum. This growth trajectory is further reinforced by an InvestingPro Tip indicating a "High return over the last year," with the stock showing an impressive 112.7% price total return over the past year.
The company's strong market position is reflected in its market capitalization of $3.69 billion. However, investors should note that Alkami is "Trading at a high revenue valuation multiple" and has a high Price / Book ratio of 11.38, according to InvestingPro Tips. This suggests that the market has high expectations for future growth, aligning with KeyBanc's increased price target.
While Alkami is currently not profitable, with an operating income of -$54.22 million over the last twelve months, an InvestingPro Tip reveals that "Analysts predict the company will be profitable this year." This projection supports KeyBanc's positive stance on Alkami's future prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Alkami Technology, providing a deeper understanding of the company's financial health and market position.
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