Jamf Holding: Apple Device Penetration Increasing to Drive Demand (NASDAQ:JAMF)

JMF Holdings (Nasdaq: JMV) is a company that develops device management solutions for Apple devices, such as Mac, iPad, iPhone, and Apple TV in business or office settings.

The overall quota performance has been disappointing so far. JAMF went public in 2020 at $39.7, but then The stock price reached an all-time high of $47 and traded sideways in the following years, and the stock price continued to decline. There has been a lot of underperformance in the past five years, with JAMF’s performance declining by more than -59%. Today, the stock is currently trading at $16.3, down -6% year-to-date.

I rate the stock a buy. My one-year price target is $18 per share upside of ~11%. At this level, JAMF presents a good buying opportunity. In my opinion, the recently launched feature to enhance the security of Apple Vision Pro could be a potential catalyst. Moreover, JAMF should also benefit from the growing demand for improvement Security of connected Apple devices in the workplace.

Financial reviews

The fundamentals have been mixed. Revenue growth has declined from over 30% to 15% year over year recently. In the first quarter, JAMF generated revenue of $152 million, an increase of 15% year over year. Likewise, operating cash flow (OCF) generation has also declined since 2022. In particular, this was caused by a significant burn of operating cash flows in the first quarter of this year and also at the same time last year. In Q1, the primary drivers of OCF burn were higher expenses across system transformation and restructuring activities. This negatively affected liquidity slightly. JAMF ended the first quarter with cash and short-term investments of $224.5 million, down slightly from the prior quarter. However, relatively high SBCs (stock-based compensation) also resulted in JAMF’s GAAP unprofitability. In the first quarter, this doesn’t seem to be improving yet. In fact, the net loss margin actually widened to -13.5%, indicating that JAMF is still a bit far from achieving GAAP break-even.

Catalyst

I think there are some catalysts for JAMF in FY2024 and beyond. It is worth noting the launch of several features for Apple Vision Pro, as well as continued expansion opportunities from the increasing demand for enterprises to secure connected business devices.

As a company developing Apple-focused offerings, JAMF should continue to benefit from the growing penetration of AR/VR headsets like the Apple Vision Pro. Since the market is in its infancy today and is still growing at 30% YoY in 2028, there is a huge opportunity for white space to be exploited here. Furthermore, given the relatively high price of the Vision Pro, I expect adoption for business use to be higher than personal use in the near term.

On a more relevant note, with more than 1.4 million units expected to ship in 2025, today’s Apple Vision Pro will likely remain the second-biggest player after the Meta in the AR/VR space. In my opinion, the increase in use of Vision Pro in the workplace should continue to increase cybersecurity and unauthorized access threats, increasing demand for JAMF’s offerings. In Q1, JAMF seems to have anticipated this by launching related features for Vision Pro, which I think should position it well to serve growing enterprise demand:

With Jamf Pro, organizations can enroll and simplify the deployment of enterprise applications and settings for Apple Vision Pro. Jamf Connect allows Apple Vision Pro to securely access enterprise resources for any web and native applications that require secure, identity-based access controls. Jamf Protect extends the same use cases for mobile threat defense, network protection, and content filtering to the Apple Vision Pro.

Source: Q1 earnings call.

The focus on security has paid off well for JAMF so far, with commercial security product ARR accounting for 21% of the company’s total ARR. In my view, this should continue to create significant opportunities to further increase subscription revenue from install base expansions, which may also lead to margin expansions from lower cost per acquisition.

risk

Although near-term structural risks remain minimal, I would note that JAMF’s continued focus on pursuing inorganic growth opportunities from mergers and acquisitions could also present some risks.

To date, JAMF has generated $550 million in M&A transactions since 2018, with the number of acquired companies continuing to increase over the years as JAMF manages to generate more OCF. Recently, mergers and acquisitions have focused on enhancing security capability, which seems like a step in the right direction. On the other hand, there are some risk factors that must be taken into consideration.

First, cybersecurity is a hot sector where companies can trade at a higher premium. Second, there is always an integration risk where, for example, JAMF may spend more resources than it expects to successfully integrate its offerings with the target solutions and then bring them to market.

In the end, they will all come down to the final stress level. JAMF was not profitable under GAAP, as I mentioned earlier, and in the first quarter, SBCs remained very high despite a slight decline. But the biggest drivers of operating costs were a 13% increase in general and acquisition expenses, which were negatively impacted by what appeared to be M&A-related activities, according to the 10th quarter:

For the three months ended March 31, 2024, general and administrative expenses increased primarily due to a $1.5 million increase in stock-based compensation expense and related payroll taxes, a $1.4 million increase in acquisition-related expenses, and a $1.3 million increase related to system costs. Transition and restructuring charges of $0.8 million,

Source: 10S.

Evaluation/Pricing

JAMF’s target price is driven by the following assumptions for bull versus bear scenarios for the FY2024 outlook:

1. Upside Scenario Assumptions (70% probability) – I expect revenues to grow 10.96% year over year to $622 million, in line with company guidance. I assume that the forward P/E will expand to 4.4x, which means the stock price will rise to the $20 price level. I assume that JAMF’s P/E will reach its highest level since the beginning of the year once it manages to achieve its FY2024 target as promised.

2. Bearish Scenario Assumptions (30% probability) – JAMF will achieve FY2024 revenue of $610 million, i.e. 8.8% year-over-year growth, which is $8 million below the company’s low target. This would correct to $15.2 per share.

By incorporating all of the above information into my model, I arrived at a FY2024 weighted target price of $18.2 per share, an expected one-year upside of approximately 11%. I would rate the stock as a buy

The 70-30 upside downside probability assignment is based on my belief that the growth catalyst should remain strong in FY2024, providing JAMF with adequate FY revenue visibility. This is also partly reflected in the company’s narrow guidance scope. On the flip side, I also lowered my downside revenue forecast by $8 million, which is a conservative assumption.

Conclusion

JAMF is a company that provides device and security management solutions for Apple devices. It should continue to benefit from the growing adoption of Apple’s offerings in workplace settings, such as the Apple Vision Pro. As such, the latest product improvement to help secure use of Vision Pro at work is likely to be a strong incentive for JAMF. Meanwhile, JAMF’s focus on M&A may also continue to put pressure on the bottom line from a GAAP standpoint if it is not executed well. Today, JAMF remains a strong company that generates consistent OCF, despite its lack of GAAP profitability. The price target of $18 per share represents an upside of 11%. I rate the stock a buy.