Long Term Online Safety Demand Will Support Future Operating Leverage Upside

Catalysts

About Qoria

Qoria provides safety and monitoring software that supports schools, parents and children across K 12 education and consumer markets.

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

• Growing awareness among schools and parents about online safety for children is supporting demand for Qoria’s K 12 and consumer products. This can support sustained ARR and revenue growth over time.
• The planned rollout of the Qoria platform and broader product set into the U.K. from March, with full availability across segments later in the year, creates scope for existing customers to adopt more modules and for future new logo activity. This can support revenue and ARR.
• Cross sell and upsell momentum in K 12, where existing customers are taking more products and the team is targeting a higher share of new business from these activities, has the potential to lift products per customer and support net margins and earnings as fixed costs grow more slowly than ARR.
• Qustodio’s ability to sell internationally across 11 languages, use multiple digital channels and partnerships, and focus on cost of customer acquisition gives it room to keep scaling subscribers while managing marketing efficiency. This can support revenue and help protect marketing spend as a share of ARR.
• A company wide focus on operating leverage, including lower growth in direct costs than revenue, efforts to improve hardware efficiency, and fixed costs trending lower as a share of ARR, provides a pathway for higher EBITDA margins and improved free cash flow generation.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Qoria's revenue will grow by 20.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -30.5% today to 3.1% in 3 years time.
• Analysts expect earnings to reach A$6.3 million (and earnings per share of A$0.01) by about January 2029, up from A$-36.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$37.1 million in earnings, and the most bearish expecting A$-26.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 261.8x on those 2029 earnings, up from -22.7x today. This future PE is greater than the current PE for the AU Software industry at 35.3x.
• 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 8.16%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If long term demand from schools for K 12 safety and monitoring tools matures or funding pressures limit IT budgets, Qoria could find it harder to sustain new logo wins and cross sell momentum. This would put pressure on ARR growth and revenue.
• Qustodio is benefiting from a relatively low cost of customer acquisition and annual subscriptions, but churn in the consumer segment is structurally high. If it stops trending lower or ticks back up, that would cap subscriber lifetime value and could weigh on earnings and free cash flow.
• The plan to roll out the Qoria platform in the U.K. and then rely on that market for future growth assumes smooth product unification and customer retention. Any delays, competitive responses or weaker than expected take up could limit cross sell opportunities and slow ARR growth.
• The model relies heavily on operating leverage, with direct costs, hardware and staff expenses growing more slowly than revenue. If wage inflation, FX or higher hardware requirements push costs up faster than expected, margins and EBITDA could stagnate or contract.
• Qoria is leaning into marketing spend for Qustodio and counting on efficient AI driven and social channel acquisition. If these channels become more expensive because of competition or regulation, the company may need to spend more just to maintain growth, which could reduce net margins and constrain earnings.

Valuation

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

• The analysts have a consensus price target of A$0.9 for Qoria based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• 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 analysts, you'd need to believe that by 2029, revenues will be A$205.5 million, earnings will come to A$6.3 million, and it would be trading on a PE ratio of 261.8x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$0.6, the analyst price target of A$0.9 is 32.6% 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.