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TeamViewer Stock Shows Acceptable Growth

Regular Nanalyze readers know we’ve worked hard to establish a set of objective criteria for analyzing disruptive tech stocks that evolves over time. That’s because rules-based investing removes human emotion from the equation which can erode portfolio returns over time. Why do passive investment vehicles perform so well against their active counterparts? It’s because they’re passive. We invest in companies, not stocks. We don’t just dump a company in our portfolio because the stock hasn’t been hitting new highs every week. In fact, we almost never exit a position unless the stock meets a couple of very simple criteria – revenue stalls for a prolonged time and/or our investment thesis has changed. 

Our Investment in TeamViewer Stock

Click for TeamViewer company website

That brings us to TeamViewer (TMV.F) stock, a play on the remote connectivity thesis that had become particularly attractive back in 2020 when it seemed like no one was ever going back to the office. While the surge in pandemic-era stocks like Zoom always seemed temporary to us, remote connectivity for devices appeared to be a better bet for long-term growth given the emergence of IoT. We decided to go long on the German Internet of Things (IoT) stock after analyzing various options among IoT stocks (there weren’t many at the time). Not only did the under-the-radar company offer exposure to increasingly important remote connectivity technologies, but it was also pushing hard into augmented reality (AR).

Of course, we know what happened to a lot of tech companies after the pandemic bubble burst: Stock prices fell, and TeamViewer stock was no different. When we assembled our initial portfolio, it was in the best of times and worst of times. Simple valuation ratios close to 100 weren’t unheard of, and just about everything was hyped. Today, many of these names haven’t rebounded while the hype is now focused on everything AI.

The last time we caught up with TeamViewer we were encouraged to see some positive developments. Revenues were up, particularly among larger enterprise customers. The net retention rate (NRR), while not at the industry benchmark of 120%, was still floating above 100% which meant the company’s existing customers weren’t spending less. When TeamViewer released preliminary year-end 2023 results this month, we decided to check back in on the company’s yearly progress.

Checking in With TeamViewer Stock

Revenue was up 11% in 2023 which came in at the lower end of guidance. The biggest gains came from enterprise clients who saw 22% revenue growth while making up just under 20% of TeamViewer’s total revenues. If you recall, TeamViewer’s strategy has been to focus on growing enterprise accounts which are more valuable because they’ll spend more. However, net retention rates tell a different story. Below you can see the NRR for enterprise clients (ENT) and the churn for small-to-medium sized businesses (SMB).

Table showing TeamViewer's Subscriber churn and Net retention rate
Credit: TeamViewer

NRR should be around 120% for a typical SaaS firm, while anything below 100% is a huge red flag because it shows existing customers are finding the solution less valuable than in the past. As for “churn,” that should be less than 5% (reflecting a gross retention rate of 95%) and it was nearly triple that last quarter for SMBs. While some of this churn is understandable given TeamViewer’s desire to focus on larger customers, it still shows users of their platform are leaving for a substitute service.

Looking into 2024, the best-case scenario is a repeat of 2023 with management providing guidance of 7-11% revenues growth. Our last piece talked about how “billings” represent contractually obligated future revenues, and we see that their largest enterprise customers are growing the fastest which reflects the company’s stated strategy.

Infographic showing TeamViewer's highest growth in highest value buckets
Credit: TeamViewer

The company has also continued using its significant free cash flow – thanks to healthy gross margins consistently above 85% – to buy back stock while share prices are low and to retire debt. That will increase earnings per share and reduce interest payments (and debt risk), but it also reflects a value stock more than a growth stock. We’d much rather see the company acquiring or investing in growth because that’s what we’re here for, in particular, the idea of augmented reality solutions creating efficiencies for frontline workers.

When Will AR Pay Off?

Last year the company made a “low double-digit million” Euro investment in a couple of smart factory startups, Sight Machine and Cybus. We covered the former some years ago as a significant player in industrial IoT and digital twins. However, perhaps TeamViewer’s smartest move was to roll back its sponsorship of Manchester United, the world’s greatest footy club (let the hate mail roll in). The company is expected to save €17.5 million this year and twice that amount in 2025. Goal!

Management also touted an enterprise deal with Siemens, a German technology conglomerate with more than $77 billion in revenue last year. The partnership involves combining TeamViewer’s spatial computing capabilities through AR with Siemens’ digital twin solutions for remote training of aerospace technicians. Just this month, TeamViewer jumped on the Apple Vision Pro bandwagon by releasing an app for the $3,500 AR device that enables remote assistance for tasks like working on complex machinery.

TeamViewer releases app for Apple Vision Pro?
Apple has reportedly sold 200,000 Apple Vision Pro so far but what percentage of users would download a TeamViewer app? Credit: TeamViewer

While most people are focused on how many billions of dollars Facebook is losing on the Metaverse, a number of companies like TeamViewer are working to solve real-world problems and develop real-world solutions by combining IoT with AR/VR technologies, from virtual collaboration to data visualization to the sort of enterprise AR apps TeamViewer is developing for Apple’s expensive spatial-computing hardware. This begs the question of just how important is AR revenue to TeamViewer’s bottom line, a metric we never get to see. Based on our analysis from a few years ago, we believe the exposure to be consequential, especially following a 2020-21 buying spree in which it acquired at least two AR companies. In the latest earnings call, management made the following remark:

We don’t disclose that number, but it’s still in the low double-digit area for AR billings. But obviously we intend to develop that nicely going forward.

TeamViewer Management

“Intend to develop” and $5 might get you a cup of coffee at Starbucks. By not providing this number for us to track, management is implying that AR contributions aren’t growing at the rate they should be. Still, assuming 11% in AR billings translates to $80 million of business (or 75 million euros). If they can start to show strong growth in this area, that might merit a richer valuation than the simple valuation ratio (SVR) of one that TeamViewer commands today (compare that to our catalog average of six).

It’s frustrating to see AR revenue growth happening so slowly (we can only assume it’s slow, we’re not told otherwise) because there is a lack of investable pure-play AR/VR companies available to retail investors. Both AR/VR companies in our Nanalyze Disruptive Tech Portfolio today are pick-and-shovel plays at best, so TeamViewer represents the closest position we have with exposure to the theme. It’s similar to another company we’ve long liked but never held that also offers a diversified set of businesses with exposure to both IoT and AR called PTC (PTC). In a future piece, we’ll look at how PTC’s SaaS transition is coming along.

Conclusion

The debate is academic at this point, as we do not plan to jettison TeamViewer stock, given that revenue is still growing (albeit rather slowly), and we still believe in the IoT remote connectivity thesis. It’s good to revisit our assumptions not only about companies but about how the underlying technologies are evolving and converging. For TeamViewer, their platform needs to start showing more value for existing customers because it’s always easier to upsell an existing customer than go find a new one. With gross margins of 87% last year, this is a cash-rich business that needs to start capitalizing on growth opportunities as a priority so it starts looking less like a value company.