Recurring Subscriptions And International Markets Will Unlock Future Value

Key Takeaways

• The shift to SaaS, international expansion, and advanced AI integration are strengthening recurring revenues, margin growth, and product differentiation.
  
• Regulatory tailwinds, successful M&A, and investments in AI are boosting demand, diversifying revenue streams, and supporting long-term growth.
  
• Dependence on contract structures, M&A integration, legacy transitions, geographic expansion, and technological innovation all present volatility and margin risks to sustained revenue growth.

Catalysts

Provides software solutions for architecture, engineering, construction, operation, and media industries in Germany, the rest of Europe, the Americas, the Asia Pacific, and internationally.

• Strong momentum in transitioning customers from perpetual licenses to SaaS/subscription models (with recurring revenue now at record highs and subscription/SaaS revenue growing at ~75%) enhances revenue visibility, increases customer retention, and provides operating leverage that supports both revenue and margin growth.
  
• Expansion into high-growth international markets (notably India, Saudi Arabia, and broader Asia-Pacific), along with declining exposure to the mature and currently weak German market, positions Nemetschek to capture outsized share of the accelerating global digitalization of AEC industries; this is expected to be a key driver of mid
• to long-term revenue growth.
  
• Increasing integration of advanced AI features across the product suite (with a move towards monetized, high-ROI AI agents and partnerships like Google Cloud) strengthens Nemetschek's product differentiation, raises switching costs, and supports potential future pricing power and premium tier upselling-driving both higher average revenue per user and margin expansion.
  
• Strategic and successful M&A activity (e.g., GoCanvas integration delivering above-plan synergies and cross-sell opportunities), coupled with a robust pipeline of ongoing investments in AI-driven and adjacent solutions, is adding meaningful inorganic growth and further diversifying revenue streams-boosting consolidated revenue and earnings growth.
  
• The accelerating regulatory adoption of Building Information Modeling (BIM) and sustainability requirements globally, combined with growing labor shortages in construction, is structurally increasing demand for Nemetschek's advanced, productivity-enhancing software platforms-expanding the addressable market and supporting multi-year top-line and earnings growth.

Nemetschek Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nemetschek's revenue will grow by 14.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 21.7% in 3 years time.
• Analysts expect earnings to reach €359.5 million (and earnings per share of €3.11) by about September 2028, up from €188.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €297.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.3x on those 2028 earnings, down from 68.9x today. This future PE is greater than the current PE for the GB Software industry at 33.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.33%, as per the Simply Wall St company report.

Nemetschek Future Earnings Per Share Growth

Risks

• The accelerating use of multiyear contracts (especially in Design/Graphisoft) creates temporary revenue boosts, but management expects the share of such deals to decrease, which may lead to lower revenue growth and increased volatility in future periods-potentially impacting top-line revenue predictability and growth rates.
  
• The company's strong M&A-driven expansion (e.g., GoCanvas) brings integration and margin dilution risks, as ongoing acquisitions require elevated investment and add amortization and financing costs, potentially compressing net margins and delaying earnings growth if synergies don't materialize as planned.
  
• While the company is successfully transitioning to subscription and SaaS, the migration from perpetual licenses is still underway in key segments, and any slowdown or pushback (particularly among legacy users) could stall recurring revenue growth and impair long-term margin expansion targets.
  
• Nemetschek's internationalization strategy is gaining traction but with only 10% of revenue in Asia-Pacific and ongoing flatness or decline in its core German market, regional macroeconomic or regulatory shocks could drive uneven or volatile revenue streams, especially if expansion into markets like India or Saudi Arabia underperforms.
  
• The increasing focus on AI integration and new product innovation is necessary for differentiation; however, larger software vendors or fast-moving startups may disrupt the market with more advanced or cost-effective solutions-posing competitive risks that could erode pricing power, customer retention, and long-term revenue/earnings growth.

Valuation

• The analysts have a consensus price target of €125.559 for Nemetschek 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 €161.0, and the most bearish reporting a price target of just €83.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.7 billion, earnings will come to €359.5 million, and it would be trading on a PE ratio of 48.3x, assuming you use a discount rate of 6.3%.
• Given the current share price of €112.3, the analyst price target of €125.56 is 10.6% 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.