The financial landscape is rapidly evolving, and digital banking is transitioning from being seen as a service platform to a vital source of revenue generation. As financial institutions tap into digital revenue streams, they recognize that data is not just an asset but a catalyst for growth. Deploying modern data capabilities and predictive AI has accelerated growth, especially compared to institutions not leveraging these tools. Alkami Technology (ALKT), a cloud-based digital banking solutions provider, is well-positioned to benefit from the rising demand for relevant data across the industry.
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The company has gained substantial recognition in the digital banking sector, helping drive the stock up over 80% in the past year. It is a solid option for investors looking for long-term capital appreciation.
Alkami’s Award-winning Tech
Alkami Technology offers cloud-based digital banking solutions. The company’s platform aims to enable financial institutions to improve user engagement, accelerate revenue, and streamline operations with a cloud-based, multi-tenant architecture.
The Alkami data platform is specifically designed for financial institutions starting their data journey and assisting these institutions in competing with megabanks that have already invested heavily in data technology. The platform services about 29 million deposit accounts, maintains data on roughly 20 billion historical transactions, and is designed to handle about 20 million new transactions daily.
The company has recently gained significant recognition. FI Navigator listed it as the top digital banking provider in the credit union market share. IDC recognized it as a 2024 FinTech Top Solution Provider, and CNBC made its 2024 World’s Top FinTech Companies list. The company further distinguished itself by becoming the first digital banking solutions company to get certified by JD Power for its mobile banking platform experience, which was also awarded “Best Banking App” in the Big Bank Theory Awards by Tearsheet.
Alkami’s Recent Financial Results
The company’s financial results for Q3 2024 were notable. The firm saw a considerable surge in live registered users, registering an increase of 2.6 million users to end Q3 at 19.5 million. The period also witnessed the addition of nine new digital banking clients and the renewal of 14 contracts, with customers extending their agreements until 2031.
Revenue of $85.91 million marked a 26.9% year-over-year increase. GAAP and non-GAAP gross margins also saw a significant improvement, with the GAAP gross margin recorded at 58.9%, compared to 54.0% the previous year, and the non-GAAP gross margin reaching 62.8% from last year’s 58.7%. The GAAP net loss decreased to -$9.4 million, a substantial reduction from -$14.76 million during the same quarter the previous year. Adjusted EBITDA experienced a significant leap, reaching $8.3 million compared to $0.8 million from the same period last year.
The company ended the quarter with approximately $101 million in cash and marketable securities and an undrawn revolving credit facility providing $125 million in borrowing capacity.
Management has issued forward-looking financial guidance for the fourth quarter, projecting total revenue from $89.0 million to $90.0 million. Additionally, the company expects its adjusted EBITDA to be within the range of $8.5 million to $9.0 million. For the fiscal year, the company anticipates total revenue between $333.2 million and $334.2 million, with its adjusted EBITDA ranging from $25.2 million to $25.7 million.
Is ALKT a Buy?
The stock has been on an upward trajectory, climbing 55% year-to-date. It trades near the high end of its 52-week price range of $20.37 – $41.36 and demonstrates ongoing positive price momentum by trading above its 20-day (36.18) and 50-day (34.00) moving averages. Its P/S ratio of 11.63x sits well above the Software Application industry average of 6.79x, suggesting its upside growth potential may be priced in.
Analysts following the company have been relatively optimistic about ALKT stock. For instance, analysts from Craig-Hallum and JMP Securities have raised their share price targets following the company’s impressive Q3 performance.
Alkami Technology is rated a Moderate Buy overall based on recent recommendations from nine analysts. The average price target for ALKT stock is $43.78, representing a potential upside of 16.44% from current levels.
Final Analysis on Alkami
Alkami is transforming digital banking with its cloud-based, multi-tenant digital banking solutions. The company’s solutions have driven robust Q3 2024 financial results, backed by a significant user registration and revenue rise. Strong future projections further underscore its growth trajectory and the upward trend of its stock, making ALKT a solid choice for investors looking for long-term capital appreciation.
