JAMF - Jamf Holding's Tech Sector Exposure Means Muted Growth Ahead (Downgrade)

2023-10-31 14:12:11 ET

Summary

• Jamf Holding Corp. provides IT services for organizations using Apple products.
• Management has lowered forward revenue guidance due to weak demand from technology clients.
• The company's financial performance has worsened, with high operating losses and a decline in revenue growth rate.
• My outlook for Jamf Holding Corp. is Bearish [Sell].

A Quick Take On Jamf Holding

Jamf Holding Corp. ( JAMF ) provides IT services for companies using or interfacing with Apple (AAPL) products.

I previously wrote about Jamf with a Hold outlook based on softer demand and continued high operating losses.

Management recently lowered forward revenue guidance on weak demand from technology clients.

Given continued macroeconomic risks, high operating losses and lowered revenue guidance, my outlook on Jamf Holding Corp. is Bearish [Sell] in the near term.

Jamf Holding Overview And Market

Minnesota-based Jamf provides enterprises with a full range of services it calls Apple Enterprise Management.

The company is led by Chief Executive Officer Mr. John Strosahl, who was previously President and COO of the firm and, prior to that, was a Vice President at eBay.

The firm’s services enable organizations to more easily integrate all types of Apple products and software into their existing systems without ever having to touch the devices.

Jamf sells its SaaS solutions via a subscription revenue model and sells larger accounts through an in-house direct sales force and smaller accounts via its online portal.

Company products include:

• Lifecycle Application Management

• Inventory & Device Management

• Identity & Security Management

• Threat Prevention & Remediation

• Visibility & Compliance.

The firm also sells through channel partners, which include Apple itself.

According to a management-cited recent IDC survey of U.S. commercial IT decision makers, it expects the penetration of Apple Mac computers to increase from 11% to 14% by the end of 2022.

Additionally, more enterprises are seeking to allow employees to use more of the technology of their choice as solutions to integrate various platforms become more available and cost-effective.

Statcounter also reported that Apple OSs "comprised 22% of global web traffic (both business and consumer) in December 2019, up from 4% in January 2009."

The increase in the use of mobile devices is mostly the reason for Apple's use growth in the enterprise, although the Mac has been an important contributor.

Management says its focus on providing a vertically integrated suite of options means it can compete better against small startups that don’t have the breadth of integrated offerings, as well as against the large providers who do not offer specialized solutions.

Jamf Holding’s Recent Financial Trends

Total revenue by quarter has continued to rise; Operating income by quarter has remained heavily negative:

Gross profit margin by quarter has trended slightly higher in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter have moved higher recently:

Earnings per share (Diluted) have remained substantially negative and have worsened recently:

(All data in the above charts is GAAP.)

In the past 12 months, JAMF’s stock price has fallen 34.6% vs. that of the iShares Expanded Tech-Software Sector ETF’s ( IGV ) rise of 24.65%:

For balance sheet results, the firm ended the quarter with $211.5 million in cash and equivalents and $365.8 million in total debt, none of which was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash flow was $53.8 million, during which capital expenditures were $6.6 million. The company paid $89.9 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Jamf Holding

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Based on the DCF, the firm’s shares would be valued at approximately $13.75 versus the current price of $15.48, indicating they are potentially currently overvalued.

JAMF’s most recent unadjusted Rule of 40 calculation was negative (4.0%) as of Q2 2023’s results, so the firm’s performance has worsened sequentially, per the table below:

(Source - Seeking Alpha.)

Sentiment Analysis

The chart below shows the frequency of various keywords mentioned in management’s most recent earnings conference call:

The chart indicates the company is facing macro headwinds and a challenging environment as clients in verticals such as technology reduce their hiring or lay off employees.

Analysts asked management about updated guidance and forecasts, customers and ARR growth and macro trends.

Management said that Q3 is exposed to seasonal education weakness and general tech weakness, being driven by less strategic, choppy revenue streams.

Leadership expects the company's net retention rates to moderate and see gross and lost retention levels stable and within pre-pandemic levels.

While management expects to wait out the weakness in general tech, it is seeing strength in commercial, financial services and retail sectors.

Commentary On Jamf Holding

In its last earnings call (Source - Seeking Alpha ), covering Q2 2023’s results, management’s prepared remarks highlighted its 18% ARR (Annual Recurring Revenue) growth year-over-year, with "strong new bookings and customer retention."

Notably, 40% of new bookings came from its Security Solutions segment, now 21% of the company's total ARR.

The firm is seeing positive trends in other industries with historically lower penetrations of Macs, such as Professional Services.

Total revenue for Q2 2023 rose by 16.9% year-over-year, and gross profit margin increased by 0.4%.

The net revenue retention rate declined to 109% due to muted customer hiring. The firm is exposed to the general technology sector, which has been shedding workers after hiring too many during the pandemic.

Selling and G&A expenses as a percentage of revenue fell by 19.0% YoY, a positive signal indicating increasing efficiency in generating incremental revenue.

Operating losses dropped by 39.7% year-over-year but remain very high at $36.9 million.

The company's financial position is relatively strong, with ample liquidity and some debt but strong free cash flow.

JAMF’s Rule of 40 performance has worsened into negative territory sequentially, as operating losses have increased over the previous quarter.

Looking ahead, management reduced its full-year 2023 revenue guidance to an estimated growth rate of 16.5% over 2022.

If achieved, this would represent a significant decline in revenue growth rate versus 2022’s revenue growth rate of 30.7% over 2021.

Potential upside catalysts to the stock could include the recent introduction of new Mac computers by Apple and strength in non-tech sectors.

However, my discounted cash flow calculation suggests the stock may be overvalued at its current level of around $15.50.

Given continued macroeconomic risks, high operating losses and lowered revenue guidance, my outlook on Jamf Holding Corp. stock is Bearish [Sell] in the near term.

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