Summary
Q2 Holdings is a SaaS company providing digital banking solutions to financial institutions, helping them digitize their operations through its platforms. The company currently serves over 1,300 financial institutions, including 40% of the top 100 U.S. banks and credit unions. Q2 generates most of its revenue through subscriptions, recording growing annualized recurring revenues. Q2 boasts a revenue CAGR of 18.6% and increasing profit margins. Operating in a digital banking market projected to grow at 11.7% CAGR over the next decade, Q2’s momentum has picked up and may set to benefit heavily from industry tailwinds.
Natera is a genetic testing company specializing in women’s health, oncology and organ transplantation. Its Panorama and Horizon brands are its primary revenue sources, with the former taking market leadership in the US. The global genetic testing sector is projected to expand at a 22% CAGR over the next six years. In Q2 2024, Natera posted solid year-over-year growth and a 59% gross margin, though it remains unprofitable. $NTRA’s stock has risen 220% over the past year and may have further growth potential based on analyst estimates.
Q2 Holdings, Inc. ($QTWO)
$84.50- Share price at time of writing
Source: tradingview.com
Summary:
- Share price at the time of writing: $84.50
- Q2 Holdings is a SaaS company that offers software to banks, credit unions and fintech companies to digitize and/or upgrade their digital banking and lending services.
- Q2 now boasts more than 40% of the top 100 U.S. banks and top 100 of U.S. credit unions as its customers.
- The global digital banking market is to grow at a CAGR of 11.7% in the next 10 years, making software like Q2’s more valuable than ever.
- This seems supported by Q2’s strong revenue growth in recent years, alongside widening profit margins.
What they do:
Q2 Holdings ($QTWO) provides digital banking and lending solutions for financial institutions and fintechs. Q2’s software-as-a-service (SaaS) solutions allow these companies to digitize their operations and offerings.
The company’s digital banking platform provides consumer banking, business banking, data management and security features, amongst several others. Its “Q2 Innovation Studio” allows businesses to develop and design features they need and enables partner integration. Q2’s “Helix platform” serves as a comprehensive banking-as-a-service (BaaS) solution, allowing businesses to incorporate banking features into their services.
Q2 reports revenues in three segments:
- Subscription: Q2 derives the majority of its revenues (76% in 2023) from subscription fees for the use of its software hosted in either Q2’s data centers or with cloud-based providers.
- Transactional: Q2’s transactional revenues come from bill-pay solutions. This made up approximately 10% of revenues last year.
- Services & Other: These include revenues from professional and implementation services related to Q2’s software. This made up the remainder of revenues.
Q2 was founded in 2004 and publicly-listed in 2014. As of last year, Q2 had over 1,300 financial institution customers, including top U.S. banks and credit unions, and recorded over 5 billion digital logins across its platforms.
What the market is saying:
$QTWO generated a lot of buzz back in between 2019 to 2021, when it hit over 200% in that timeframe, but doesn’t get much discussion on forums recently. However, it gets some research coverage from amateur analysts, looking at its fundamentals and momentum.
Source: quiverquant.com
Recent comments from Seeking Alpha:
“They’ve made considerable progress in expanding both gross and operating margins. Although they are yet to produce a net profit, their margin expansion has helped fuel strong cash generation. On top of all this, Q2 has been riding a strong momentum wave, and appears set up to continue exceeding expectations.”
- Mountainside Research
Why $QTWO could be valuable:
Industry
Q2 Holdings operates within the broader (SaaS) sector but has established a distinct niche in digital banking solutions. The company has positioned itself at the intersection of traditional banking and the digital transformation wave, serving both established financial institutions and emerging fintech companies. As traditional banks face increasing pressure to digitize their operations and compete with new digital-first competitors, Q2’s software offerings become increasingly valuable.
The global digital banking market is to grow at a CAGR of 11.7% in the next 10 years, driven by increasing smartphone adoption and rising demand for digital financial services among millennials and Gen Z consumers. Q2 now estimates its total addressable market (TAM) to be over $17 billion. This number is supported with research indicating that 76% of Americans now use their primary bank’s mobile app for everyday banking tasks, while digital banking engagement has increased by over 45% since 2020.
Q2 in fact boasts that on average, its customers that have integrated its digital banking platform have been able to grow revenues by ~42% within three years of implementation. While there are competitors present in the industry, Q2 has built a strong moat by offering a highly configurable platform with a comprehensive suite of functions. As of last year, Q2 already had more than 40% of the top 100 U.S. banks and top 100 of U.S. credit unions as its customers. With both industry tailwinds and numbers to support its strong product, Q2 looks set for further growth.
Financials
Impressively, Q2 has maintained steady quarterly revenue growth in the last decade. The company’s revenue nearly doubled in the last four years, from $315M in 2019 to $624M in 2023. This represents a solid CAGR of 18.6%.
Q2’s annualized recurring revenue from subscriptions reached $634 million last quarter (Q2 2024). This represents the most stable and predictable portion of their revenue base, as it comes from ongoing customer subscriptions rather than one-time fees or services.
$QTWO TTM revenues per quarter from 2013 to 1 July 2024:
Source: macrotrends.com
Q2 has grown gross profit margins in recent quarters, going from a range of 45-46% in 2021 to 49-50% in the last year. EBITDA margins have shown the most improvement, increasing from the negative double digits in 2019 to 0.9% in the most recent quarter (Q2 2024), demonstrating progress toward operational efficiency despite remaining below industry averages.
While top-line growth has been consistent, Q2 is still working toward consistent profitability. The company reported a net loss of $65M in 2023, though this represents an improvement from the previous years.
$QTWO TTM net income per quarter from 2013 to 1 July 2024:
Source: macrotrends.net
Despite this, Q2 maintains a solid financial position. Its latest statement in July showed that its cash balance alone can comfortably cover current liabilities. More than 60% of Q2’s current liabilities consists of deferred revenue ($134M), representing future contractual obligations that will convert to recognized revenue. And although Q2 is yet to record net profits, the company has been cash flow positive over the last several quarters.
Price action
$QTWO has recorded share price growth of ~190% over the last year. However, the current share price remains well below its peak in 2021. The consensus analyst price target shows that the current share price may be at around fair value.
What the risks are:
Unprofitable: Despite Q2’s strong revenue growth, the company remains unprofitable, posting consistent net losses since its earliest publicly available income statements in 2014.
Equity raises: Q2 has relied on equity financing to fund operations, including a $461.8M convertible note offering in 2021, which can dilute existing shareholders’ ownership and value over time.
Cybersecurity: As a provider of digital banking infrastructure that handles sensitive financial data, Q2 faces significant cybersecurity risks. A breach could severely damage their reputation, trigger regulatory penalties and cause customer losses.
Bottom line: Q2 Holdings provides SaaS digital banking solutions to financial institutions, primarily earning through subscriptions. From 2019 to 2023, Q2 nearly doubled revenue and now serves over 1,300 clients, including 40% of the top 100 U.S. banks. With the digital banking market expected to grow at 11.7% CAGR, Q2 estimates a $17 billion market opportunity. Despite a $65M net loss in 2023, the company maintains strong fundamentals – nearly 50% gross margins, positive free cash flow and $634M in recurring revenue.
Natera, Inc. ($NTRA)
$120.71 – Share price at time of writing
Source: tradingview.com
Summary:
- Share price at the time of writing: $120.71
- Natera is a genetic testing company specializing in women’s health, oncology and organ transplantation.
- Natera is active in a fast-growing genetic testing market, which is expected to grow at a 22% CAGR over the next six years.
- Founded in 2007 and publicly listed in 2015, Natera has posted double-digit revenue growth since its IPO.
- $NTRA is up over 220% in the last year, notching a new all-time high earlier this month. The consensus analyst price target suggests that $NTRA may still have room to grow.
What they do:
Natera ($NTRA) is a genetic testing company that specializes in providing advanced diagnostic solutions for women’s health, oncology and organ transplantation. Some examples of its products include non-invasive tests for detection of conditions like Down syndrome, a personalized blood test to detect diseases and monitor cancer recurrence, and tests for organ health like assessments for transplant rejection. Natera owns numerous brands which include Signatera, Horizon and Panorama.
Natera reports revenues in two segments:
- Product revenues: primarily driven by sales of Panorama and HCS tests, most of which are units used within laboratories. The vast majority (98.7% in 2023) of Natera’s revenues come from this segment.
- Licensing and other revenues: driven by Natera’s development licensing revenues and the licensing of its Constellation software.
Natera’s Panorama and Horizon make up the bulk of the company’s revenues, with the Panorama brand now the market leader by volume in the US for non-invasive prenatal tests. The company was founded in 2007 and IPO’d in 2015.
What the market is saying:
Interestingly, $NTRA gets multiple mentions on social media. The majority are around its technicals (i.e. price movements). Outside of $NTRA, Natera as a company also gets discussed in healthcare and women’s health forums.
Source: quiverquant.com
A recent comment from Reddit:
“Natera is essentially doing what ancestry companies strive to do, which is provide health relevant info with DNA. Essentially they’re one of the early ones and have patents to back it up. So, they have high potential, which is what stock price is all about.”
- Recloyal
Why $NTRA could be valuable:
Industry
Natera operates within many areas of the healthcare sector, but generates the majority of revenues from genetic testing services. The global genetic testing industry has seen rapid advancement over the last decade as biotech firms race to improve healthcare techniques. This growth is set to continue, with the genetic testing market size expected to expand at a CAGR of 22% in the next six years. Competing with established labs and biotech firms, Natera has differentiated itself by emphasizing minimally invasive solutions. Its offerings in prenatal screening, cancer detection and transplant monitoring align especially well with these trends.
As of last year, Natera estimated its total addressable market (TAM) to be $16 billion for its oncology treatments alone. Natera has not provided guidance for its other segments or products but is well-placed to capitalize on a growing demand for precision medicine and healthcare providers’ increasing focus on proactive health management.
Financials
$NTRA has recorded consistently growing quarterly revenues since its IPO. Its most recent quarterly report (Q2 2024) showed year-on-year growth of 58%. Likewise, test volumes for the quarter grew by double digits, indicating that revenue increases were driven not only by price adjustments but also by higher sales volumes.
Since 2018, Natera has recorded double-digit annual revenue growth.
Natera’s TTM quarterly revenue from 2014 to 1 July 2024:
Source: macrotrends.net
Perhaps what Natera can boast about the most are its margins. The company recorded a gross profit margin of ~59% last quarter, a dramatic increase from the 45% recorded in the same quarter the prior year. For a company that produces tangible products, Natera records margins that can be on par with software companies.
Despite that, Natera has not yet recorded profitability.
$NTRA’s quarterly net income from 2014 to 2024:
Source: macrotrends.net
$NTRA’s however boasts a highly robust balance sheet, with cash and cash equivalents more than able to cover total liabilities. While that has admittedly been due to equity raises done every year in the last four years, Natera recorded its second consecutive cash flow breakeven quarter last quarter.
Price action
$NTRA is over 220% in the last year, hitting a new all-time high earlier this month. Despite that, the consensus analyst price target of US$133 shows that $NTRA may still have room to grow.
What the risks are:
Lack of profitability: Despite Natera’s strong revenue and margin growth, its lack of profitability raises concerns about the long-term sustainability of its operations and financial stability.
Share dilution: Natera’s continued lack of profitability has led it to rely on raising capital through equity, which, if it persists, could result in dilution for shareholders.
Strict regulatory environment: Natera operates in a highly regulated industry, where compliance with healthcare and genetic testing regulations is critical. Failure to meet these regulatory standards, or changes in laws, could impact Natera’s ability to bring new products to market or expose the company to potential legal and financial risks.
Bottom line: Natera ($NTRA) is a genetic testing company whose main products include non-invasive tests for detecting genetic conditions, personalized blood tests and organ transplant assessments, with Panorama and Horizon as key revenue drivers. Founded in 2007 and publicly listed in 2015, Natera operates in a fast-growing genetic testing industry, with the market expected to expand at a CAGR of 22% over the next six years. Natera’s Q2 2024 report showed strong year-over-year growth, with a 59% gross margin, though it has yet to achieve profitability. With a robust balance sheet and strong cash flow momentum, $NTRA’s stock has surged 220% in the last year and has potential for further growth according to analyst targets.
