2023-11-13 09:50:29 ET
Summary
- Alkami Technology, Inc.'s focused approach to the bank market and successful cross-selling initiatives underscore its adaptability and strategic growth trajectory.
- With a strategic shift towards profitability in 2024, Alkami combines solid growth with a reasonable valuation, offering investors an attractive entry point.
- The expanding P/Sales multiple, still within a reasonable range, suggests that Alkami's improving profitability and projected 25% to 30% top-line growth in 2024 could result in a rewarding investment.
Investment Thesis
Alkami Technology, Inc. ( ALKT ) provides a comprehensive digital banking platform that enables financial institutions to deliver tailored and innovative digital experiences to their customers, fostering engagement and satisfaction. Their platform covers a range of services, including online and mobile banking, helping institutions stay competitive in the rapidly evolving digital landscape.
The stock finds itself at a sweet point, with a combination of solid growth and a valuation that isn't stretched.
Indeed, I succinctly sum up my thesis as this, assuming its multiple stays roughly the same around 7x to 8x forward sales, and the business continues to grow its revenues at close to 25% CAGR, this stock should be a very rewarding investment, particularly given that its profitability profile is expected to turn stably profitable in 2024.
Alkami Technology's Near-Term Prospects
Alkami's goal is to help smaller financial institutions compete with larger banks by offering them a comprehensive set of tools and services. The main product, called the Alkami Platform, allows these institutions to attract and engage new users, increase revenue, and improve operational efficiency. The platform is known for its personalized, real-time integrations with other financial systems, and deep data capabilities for meaningful insights.
The Alkami Platform covers a range of digital banking needs, such as account opening, loan origination, card experience, client service, financial wellness, security, fraud protection, marketing, analytics, and money movement. They have a flexible and scalable architecture, making it easy for financial institutions to add new features and products as needed.
Alkami primarily targets community, regional, and super-regional financial institutions in the United States, ranging in size from $500 million to $100 billion in assets.
During the earnings call , Bryan Hill, Alkami's CFO, highlights the company's ability to maintain growth in the rapidly evolving digital banking sector, stating, "The beauty of our financial model is it provides visibility that allows us to invest and know when to invest and where to invest." This implies that Alkami's strategic investments align with the current demands of the market, positioning them for sustained growth.
Moreover, the emphasis on cross-selling and expanding into the bank market adds to Alkami's growth narrative. The company's focus on creating a client sales team has resulted in successful cross-selling efforts, particularly in areas like fraud and security products, contributing to revenue diversification. Alex Shootman, CEO of Alkami, notes a positive shift in bank market dynamics, saying, "We are being invited to more opportunities, and... our win rate [in banks versus credit unions] being slightly less... is really a bit of good news because we wanted our participation rate in banks to go up." This suggests that Alkami's deliberate strategy to penetrate the bank market is yielding positive results, with increased participation and invitations to opportunities, setting a favorable tone for the company's near-term growth prospects.
Given this context, let's now delve into Alkami's financials.
Revenue Growth Rates Remain Steady
Perhaps the most insightful aspect we have to go on is the fact that its revenue growth rates remain very close to 30% CAGR. This is a tough feat to accomplish at the best of times. But particularly right now, where intense competition overwhelms the industry.
Case in point, consider a peer's performance, Fiserv ( FI ), in the past 6 months.
Moving on, Alkami's CEO Shootman acknowledges the shifting dynamics in customer preferences and market trends, stating"
"As the pressure has increased for anybody that serves a consumer market to deliver a really great digital experience, they're realizing that their commercial accounts... have to deliver a really great digital experience, and that's what Alkami is known for."
This implies the necessity for Alkami to adapt to evolving customer expectations and industry trends to sustain its competitive edge.
Where the Bull Case is Found
What the market rewards strongly are companies that are about to turn profitable. Companies that are on the cusp of going from being unprofitable to sustainably profitable, while still delivering solid growth rates, investors reward with a high multiple.
As you can see from the graphic above, Alkami's P/Sales multiple has expanded substantially from the lows set earlier this year.
That being said, I don't believe that paying around 7x to 8x forward sales for Alkami is an exuberant valuation. It's very reasonable for its multiple to expand slightly further.
However, to be clear, even without multiple expansion, provided that Alkami simply delivers against investors' expectations, investors should be rewarded, if Alkami's profitability continues to improve, while Alkami delivers about 25% to 30% topline growth in 2024.
The Bottom Line
In conclusion, Alkami Technology emerges as an enticing investment proposition, poised at the nexus of robust growth and a reasonable valuation.
Notably, the consistent 30% CAGR in revenue growth, coupled with a strategic shift towards profitability, underscores the company's resilience in a competitive landscape.
As Alkami continues to deliver against investor expectations, there's scope for its P/Sales multiple to expand, as it's still priced within a reasonable range. Altogether, this suggests a potential rewarding investment.
For further details see:
Alkami Technology: Fintech That's On The Cusp Of Profitability