[free] TEXT.WA - The company is undervalued. Everyone got it wrong?
Hey there!
This post got some traction on X:
This is not a “bullish” thesis.
I consider myself a value investor, so I need to note that TEXT is very cheap, even in a worst-case scenario. Do not expect a quick 2x return - there may be more pain ahead. In my view, the company is going through a small "restructuring," which usually takes 1-3 years to play out. But even if a lot goes wrong, it’s still undervalued.
Let’s get started.
Context
First, let’s take a look at some numbers to put things in the right context.
TEXT is a Polish software company that develops and sells customer communication solutions globally:
LiveChat (89.2% of revenue)
ChatBot (7.2% of revenue)
HelpDesk and KnowledgeBase (3.8% of revenue)
The company operates on a SaaS model with recurring revenue and international reach:
80.3% gross margin
51.5% operating margin
48.1% net profit margin
MRR of $7.10M, growing at 9.4% yoy
LiveChat ARPU increasing from $156.4 to $178.6 (14.2% growth)
HelpDesk ARPU growing from $140 to $210.2 (50.1% growth)
Current Valuation Metrics
Mcap: 1308.1M pln
EV: 1220.45M pln
Cash: 87.99M pln
Current annualized EBIT: 182.1M pln
Current EV/EBIT: 6.70x
P/E 7.6x
FCF yield: 12.7% / OCF yield: 15.2%
10-year average EBIT: 90.71M PLN
10y perspective
The current valuation represents a significant discount from historical levels:
10y avg EV/EBIT: 21.15x
Current EV/EBIT: 6.70x
10y avg PE 25.26x → current 7.6x
10y avg EV/EBITDA 21.27x → current 6.63x
Discount to historical avg of nearly 70%.
Not enough? Let’s move on.
Better than bonds.
Pre-tax earnings yield: 14.93%
2x interest coverage: 14.93% / 2 = 7.47%
3x interest coverage: 14.93% / 3 = 4.98%
Poland's risk-free rate: 5.97%
Is the businees stable enough for you with its profitability and margins?
Use 2x coverage then.
Do you think the business is of poor or mediocre quality? Use a more conservative approach. But still, it is nearly equal to the risk-free rate.
Balance Sheet Strength
Cash: 87.99M PLN
Debt: almost none
Current ratio significantly above 1
Not enough downside protection for you?
Let’s move on.
Cash Flow and Profitability
FCF yield: 12.7% / OCF yield: 15.2%
Owner earnings with the discount:
profits + amortization - maintenance Capex (5% of revenue): 170M + 23.7M - 17.7M = 176M PLN
with the discount of 11%: 176/11% = 1600M pln
plus cash: 1688M pln
Potential upside: 29%
Ltm ROE 135%, ROC 122%.
Growth.
MRR up 9.4% yoy
ARPU for LiveChat 14.2% growth
ARPU for HelpDesk 50.1% growth
API platform beginning to generate revenue (160k USD already)
AI integration enhancing product capabilities
International expansion opportunities
Cross-selling potential across product suite
Dealing with nightmares.
Declining customer numbers:
LiveChat customers dropped from 37,848 in Q4 2023/24 to 35,508 in Q3 2024/25
This represents a 6.2% decline in 9 months
Intense competition:
TEXT’s competitors offering lower pricing
AI agents increasingly threaten to replace traditional customer service solutions
Strategic pivot challenges:
TEXT is transitioning from single products to a bundled Suite approach
This requires a shift in marketing strategy
Their historical SEO advantage may be less effective for selling complex, higher-priced solutions
Enterprise sales require different approaches than their historical model
Marketing strategy limitations:
Heavy reliance on SEO for customer acquisition
Building enterprise sales teams will increase costs
Longer sales cycles with larger customers could slow growth
The nightmare setup (let’s assume)
Customer decline: LiveChat customers continue declining at 5-8% quarterly for the next 3 years
End of Year 1: ~30,000 customers (-15.5%)
End of Year 2: ~25,500 customers (-15.5%)
End of Year 3: ~21,500 customers (-15.5%)
Revenue impact:
ARPU growth slows from current 14% yoy to just 5% /year
Year 3 rev declines by around 14% from current levels
Margin compression:
Operating margins decline from current 51.5% to 35% over 3 years due to:
Price cuts forced by competition
Higher marketing and sales costs
AI and infrastructure investments
Increased staff costs to retain talent
Suite strategy struggles:
Limited interest in the bundled offer
Longer implementation timeframes than expected
Higher customer acquisition costs
Failed attempts to acquire additional suite components
Dividend reduction:
50% cut to dividend payout ratio to fund strategic initiatives
Capital reallocated to fighting competitive threats
What does hell look like in three years?
Year 3 Revenue: ~307M pln(representing a decline from current trends)
Year 3 EBIT: ~107.5M pln (35% margin)
Year 3 net profit: ~98M pln (32% margin)
Year 3 Free Cash Flow: ~98M PLN
“New normal” in Year 3:
At a 10x EBIT (is it reasonable for you for a profitable software company?): 1075M pln
Plus remaining cash: 50M pln (too much?)
Pessimistic value: ~1125M pln
Current market cap: 1,308.1M pln
Downside in this scenario: ~14%
Reminder.
Financial strength providing flexibility
Rising ARPU/MRR offsetting customer churn.
Exceptional margins providing buffer.
Product diversification protect revenue.
Last words.
Even in a brutal pessimistic scenario, its core strengths: high margins, recurring revenue, and financial health - keep it afloat.
Text doesn’ need to execute perfectly to provide attractive returns.
It needs to avoid disaster.
The bear case arguments are focused on issues the company is already addressing.
Today, you are not paying for success - you are getting an undervalued company even assuming partial failure.
Do your own homework.
Agree with you. We cannot forget that founders (main shareholders) are also computer engineers and well aware of the risks and opportunities of AI. I think that at these prices the annual return will be attractive for shareholders with a long term time horizon.
I’ve been looking into $TEXT.WA, and despite my tech background, I couldn’t find any MOAT for this business. What do you think is their competitive advantage? Their app ecosystem seems pretty good, but the switching costs aren’t that significant.