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Charday Penn
Thesis
Previously, I wrote in my post that Jamf Holding (NASDAQ:JAMF) is a company that specializes in Apple (AAPL) Business Management and offers a cloud-based platform for the full lifecycle enterprise IT management of Apple devices. The company has a strong relationship with Apple and support from Jamf Nation and has a lot of room to expand as Apple continues to increase its market share. Consequently, I believed the stock was undervalued, with a target price of $32. This scenario did not play out as the stock price continued to drift downwards, largely due to multiple compression from 36x forward EBITDA to 30x forward EBITDA. I believe the stock is still undervalued post the review of 4Q22 results. JAMF had a strong 4Q22, but their FY23 revenue forecast was lower than expected. Even in a tough economy, I see the initial guidance for ARR growth of 17-18% as a positive indicator of market share gains relative to legacy competitors. In addition to my optimistic outlook on profitability, JAMF’s efforts to reduce discretionary spending in order to increase operating leverage are encouraging. However, I’ve noticed that the current macro environment may have a greater impact on growth trends if it dampens expansions with existing customers (which I think is a temporary situation).
Given the dismal state of the macroeconomy and JAMF’s sizable tech exposure thanks to its deep penetration of MDM, I think many investors have been feeling pessimistic about the stock. However, I believe fundamental matters most ultimately. With solid EBITDA margins anticipated in FY23, I believe as JAMF continues to execute, the market will eventually come to its senses to value JAMF correctly. I reiterate my buy rating.
ARR/NRR
The total ARR increased by 24.2% year-over-year to $512.5 million, with 72% coming from Commercial clients and the remaining 28% coming from Education. While 20% of ARR comes from security-related offerings, 80% comes from Management solutions. The number of managed devices reached 30 million by quarter’s end, an increase of 12.8% year over year. Even though adoption has slowed, the fact that ARR per device has increased to $17.08 in the seventh quarter is noteworthy. Similarly, net revenue retention has been trending downward from a first quarter rate of 120% to a fourth quarter rate of 113%. In my opinion, the macro has customers reducing the rate of device expansion while re-evaluating their need for new staff, which is causing a steady decline in net revenue retention. Therefore, in my opinion, this is just a temporary situation inherent to economic cycles. There are, however, countervailing forces, such as the possibility of a cross-sell between JAMF’s Security solution and the Macro solution if the Macro continues to weaken. Recent and historical quarterly results show that JAMF has been successful in this endeavor. More than 13,000 customers are using JAMF management in conjunction with the Security solution, an increase of 1,000 from the previous quarter. Meanwhile, there was an increase in total customers of 2,000 from the previous quarter, bringing the total to 71,000. The fact that JAMF kept all of its top 100 customers in 2022 and saw an increase in the annual contract value from each of its top 25 customers, despite some misleading headlines, suggests that the company is still going strong.
Macro Impact is Not Unexpected
The midpoint of the $128.5 million to $130.5 million revenue range projected for 1Q23 represents growth of 19.6%. Non-GAAP operating income is expected to be between $3 million and $4 million in 1Q23, with the midpoint representing a margin of 2.7%. Management expects full-year FY23 revenue to fall within the range of $559 million and $563 million, representing year-over-year growth of 17.2% at the midpoint. Non-GAAP operating income for FY23 is projected to range from $37.5 million to $40.5 million, with a midpoint margin of 7.0%. I believe the guidance is largely alright when we take into account the current macro environment. As a result, I anticipate that shareholders will look past the dismal performance in 1Q23 and possibly all of FY23, and instead place their hopes and expectations for future years in FY24 and FY25. Management’s emphasis on the company’s exposure to technology customers, which I believe may have worsened stock sentiment given the current turmoil in the tech/software industry, is worth noting. I wouldn’t be surprised if interest rates kept rising, which would have a negative effect on the tech/software industry and, by extension, JAMF. However, as I said, I believe all of these are temporary situations. If investors are able to look past the weak FY23, I think the stock price should start to react positively as we move towards 2H23 (which management expects things to start picking up in 4Q23).
Overall, I anticipate ARR growth in the high teens, which, given the current macro backdrop, is very solid. The JAMF 1-1,000 employee range for commercial customers is where I anticipate the most growth, as this is where the company is seeing the greatest rate of growth (as reported by management). This segment also has the highest rate of security attachment. While I expect device growth to be slow for the most part of FY23, I do want to point out that JAMF is well positioned to re-accelerate growth once the current economic malaise subsides, which I am hoping will happen in 4Q23.
Conclusion
JAMF had a strong 4Q22 despite a lower-than-expected FY23 revenue forecast due to the impact of the macroeconomic environment on customer expansions. While the current macro environment may dampen expansions with existing customers, I believe this is a temporary situation and fundamentals matter most, ultimately. With solid EBITDA margins anticipated in FY23, I believe that as JAMF continues to execute, the market will eventually come to its senses to value JAMF correctly. Overall, I reiterate my buy rating on JAMF.
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