A Quick Update on Alarum Technologies
Blasting Q1/24 figures out of the water, the shares are still cheap after some profit taking
In February we introduced our readers to Alarum Technologies, for the basics of the company we refer readers to that earlier article for the basics.
We had already introduced the company well before that in our Seeking Alpha marketplace.
We argued that the shares of Alarum would reach $30, and that happened even sooner than we expected, in the wake of stunning preliminary Q1/24 figures.
We now revise our $1+ EPS forecast and double that to $2+, and in the meantime the shares have pulled back nicely and can be called really cheap at under $25.
Q1 Results
Alarum now effectively is NetNut, it's IPPN/EDC (Enterprise Data Collection) products as its loss making consumer business has run off, one of the best decisions they could have taken, turning the company into a high-growth, profitable and cash generating entity with NetNut.
NetNut growth remains absolutely stunning, after 150% growth in FY23 and Q4/23, Q1/24 showed 140% growth to $8.2M+.
One important driver is existing customers, an extremely high NRR (Net Retention Rate) of 153% in Q4/23 (up from 146% in Q3/23) which indicates existing customers spend $1.53 for every dollar they spend a year ago (including of customers who left), customers seem to be very happy (as G2 reviews also show, all but one five star reviews).
And given that the company will introduce a new product its website unblocker for all customers this quarter they are likely to keep spending more.
But the company also wins new customers, they are still pretty small compared to the potential market with some 700+ customers at the end of 2023.
Cash generation was also very impressive, operational cash flow was $3.2M in Q1, that's more than 50 cents per share, which is why we're confident the company can do $2+ in EPS in FY24.
Cash is expanding, from $10.9M at the end of 2023 to $15M at the end of Q1/24 (and no debt), cash that could become handy when they might decide to acquire an AI analytics company, rather than to build it themselves.
After introducing two new products (here and here) the company will introduce its third new product, its AI-driven automatic data scraper, which could afford them a leg up in the market open up another revenue stream from existing customers.
For next year it plans to move up into the the final layer with an AI-based data-analytics product, either by acquisition or through internal development.
There are just 6.4M shares outstanding in the US.
Conclusion
NetNut has seven-folded from $3M in revenue in 2019 (when the company acquired it) to $21.3M in 2023. They are clearly winning market share in fast expanding markets with growth well into triple-digit territory and introducing new products.
We think that the shares of a company growing well into triple digit territory, producing 75% gross margins on recurring revenues with an NRR at 150%+ and great operating leverage and cash generation likely to end the year with $25M in cash should trade at a significantly higher multiple than the 12 p/e or so it's trading at (at the moment of writing the share price is under $23).
They have retreated from touching $30 on profit taking, it could take a little longer but we don’t think that will last long.