We cut '23e-'24e sales by 10-15% on the back of a slightly more sluggish Algo, as well as a longer ramp-up period for Digital Identity. In H2'23e the Algo segment should recover on a demand rebound as well as an emptying of inventories held by smartphone OEMs. We have also made estimate changes with respect to gross margins and opex based on both the Q4 report and the conference call that followed. First, we have reassessed our view of the maintainable gross margins in the Algo and Digital Identity segments and therefore reduce the future gross margins by 8-9pp as a rapidly-growing Digital Identity segment will change the sales mix and also the margin profile. Second, the company suggested that the opex in '23e should be in line with that of '21. Hence, we raise '23e EBITDA by 3% and reduce '24e EBITDA by 13%. Finally, we believe that the company's strategic decision to grow through partnerships rather than through in-house sales staff is a key step to grow in a profitable way in the current environment, and while that may reduce gross margins slightly, it will also keep opex in check.
Implied valuation
Based on our revised estimates, the company is trading at '23e EV/sales of 1.8x and 13x '23e EV/EBITDA, which is ~25% below the historical 5-year median.
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