MobileIron’s (NASDAQ:MOBL) mobile-centric security platform continues to face substantial pressure from competitors. The company’s shift towards more cloud and subscription deals will impact its growth factor in the short term. The effect will only be minimal if its cross-sell motion grows at a fast rate. This is tough to bet on given the level of competition in its operating segments.
MobileIron needs more support from other valuation factors to drive multiples expansion. The need to keep investing to drive growth makes it tough to make a case for valuation outperformance.
Mobileiron reported growth metrics that impressed the Street during its last earnings. The growth outperformance was a function of favorable macro tailwinds (working from home trend), which helped build its pipeline in H1’20. This was assisted by perpetual licensing deals, which were concentrated in the last quarter. The perpetual licensing deals will be a headwind to revenue growth heading into the back half of the year as the mix shift towards a subscription billing model picks up more momentum. This explains the low revenue guidance provided for Q3’20 (-5% y/y growth at the midpoint) and FY’20 (+1% y/y). While dollar retention came in at 103%, getting more color on the new logo contribution to ARR growth will have provided some reassurance about MobileIron’s growth momentum. In the absence of compelling evidence that new logos will move the ARR needle, investors will have to put more faith in the upsell and cross-sell potential of its installed base. This will be driven by the adoption of technologies like multifactor authentication, mobile threat detection, and its latest phishing solution. The Street appears not so convinced about the weakness of the new logo growth. This is weakening MobileIron’s growth factor.
MobileIron has been investing in improving the capabilities of its offerings. It recently added phishing protection capabilities to its MTD offering. Phishing attacks are a leading cause of data breaches, according to the latest Verizon data breach report. MobileIron also acquired Incapptic Connect in April to improve its mobile app management capabilities.
Incapptic Connect software automatically validates that an app meets the necessary requirements for publishing to either a public or in-house app store. incapptic Connect then automates the publishing process. Source – MobileIron
These improve the cross-sell opportunity from zero sign-on, MFA, and mobile threat defense. Improving ARR from its installed base is important to drive margins and FCF expansion.
MobileIron’s gross margins are expected to be impacted by the revenue mix shift to its cloud subscription business. Opex ramp will also impact margin expansion as MobileIron invests to grow market share. The mix shift towards subscription billings will no doubt impact deferred revenue. This is a headwind to operating cash flow.
MobileIron’s debt-free balance sheet makes its financial profile more attractive as it makes its billings transition. Though, it appears it needs to invest in adding more capabilities to increase its win rate across its key operating segments.
MobileIron makes more revenue outside North America. This makes its global expansion efforts an essential element of its growth strategy. The EMEA region improved y/y, contributing to the beat reported last quarter. We remain wary of disruptions to normal business activities caused by the global pandemic. Going forward we expect revenue outside North America to be in line.
MobileIron’s offerings continue to face pressure from competitors in the EPP, access security, and UEM segments.Source: Forrester (comment by Author)
Gartner’s latest MQ rank for the UEM (unified endpoint management) space highlights MOBL as a challenger behind Microsoft (NASDAQ:MSFT), BlackBerry (NYSE:BB), and VMware (NYSE:VMW). Microsoft’s improving endpoint management capabilities continue to challenge the pricing power of niche UEM players. This explains MobileIron’s highlight of its improving partnership with Apple (NASDAQ:AAPL) during the last earnings call. The macOS and iOS serve as a unique capability to lock in customers with mixed OS deployments.
MobileIron’s MFA offerings also face intense competition from big tech companies and leading access management players. Its mobile threat defense faces competition from EPP (endpoint protection) players who have largely improved their mobile security capabilities. This makes the rumors about a potential acquisition less likely to be viable.
Winning against competitors in its key operating segments will require the addition of more capabilities. Players in identity management are innovating at a fast pace. This is reflected in the huge momentum of their go-to-market strategy. MobileIron doesn’t have much support to lean on in terms of its EPS and cash flow factor. This explains the suppressed valuation multiples. We remain confident in MobileIron’s mobile-centric Zero Trust strategy. However, pressure from competitors remains a significant inhibiting factor to win rate. This makes it tough to make a case for multiples expansion.
MobileIron is facing a growing commoditization of the UEM space (mostly from the Windows operating system). Its macOS and Mobile OS strength partially offset this.
Its financials will face more liquidity pressure due to a mix shift towards a subscription billing model. The advantage is the sticky nature of subscription revenue. Investors need to develop the appetite to stomach the volatility that will result from this transition.
MobileIron faces strong competition across all fronts. This has a considerable impact on its pricing power and market share growth potential. MobileIron will have to stretch its balance sheet to layer new capabilities to stay competitive.
Lastly, its weak growth factor impacts the potential for multiples expansion in the short term.
Conclusion (Rating: Underweight)
MobileIron needs to add more capabilities to outperform its rivals. The market wants more endpoint management and access security solutions. Competition is huge, and MobileIron needs more help. The potential for MobileIron to be acquired by a rival is slim. Given that its growth factor will go through a transition in the coming quarters, it’s more likely MobileIron is taken private. Going private will help MobileIron revamp its growth strategy while driving better-operating efficiency. In the short term, the potential for MobileIron to outperform remains slim.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.