Pexip: Where Strong Cash Flow Meets Recurring Growth
A rare blend of high free cash flow, dividend potential, and resilient SaaS growth.
Last week, we launched the Gullinbursti Dividend Portfolio, and one of the companies we included was Pexip (PEXIP.OL). We selected Pexip based on its strong free cash flow profile, attractive dividend potential, exposure to structural growth drivers like secure video and interoperability solutions, and its steep valuation discount relative to peers. With Pexip’s Q1 2025 earnings approaching (May 7th), we wanted to provide a deeper look at the fundamentals supporting our original thesis.
A Deep Discount in Nordic SaaS
Pexip is currently trading at NOK 41.60 per share, implying a market cap of NOK 4.3 billion. Based on updated analyst models (SpareBank 1 Markets, ABG Sundal Collier, Pareto Securities):
P/CEPS 2027e: ~11-12x
FCF Yield 2025e: ~7–9%
Valuation discount vs. Nordic SaaS peers: 30–35%
Despite solid ARR growth, strong cash conversion (91%+), and expanding EBITDA margins (24% to 28%), Pexip trades at a steep discount. SpareBank 1 Markets, ABG, and Pareto all rate the stock BUY, with price targets ranging from NOK 55 to NOK 65.
Notably, Pexip sits on a net cash position of NOK 626 million (~14% of market cap), offering flexibility for dividends, buybacks, or strategic investments. Based on analyst estimates, Pexip could yield 9–18% in cumulative dividends over 2025–2027, or up to 27% including extraordinary payouts.
In short: investors today are paying below market average for above-average cash flow, growth, and financial strength.
Growth Opportunities: Zoom, Teams, and Sovereign Cloud Tailwinds
Pexip’s two revenue engines are:
Connected Spaces (60% of ARR):
Interoperability for Zoom Rooms, Teams Rooms, Cisco/Poly devices.
New Zoom Connect and Teams Connect products massively expand addressable market.
Example: HSBC contract (~4,000 Zoom Rooms).
Market consolidation: with Verizon BlueJeans retired and Poly Clariti sunsetting, Pexip is one of just two major players left in the space.
Secure & Custom Spaces (38% of ARR):
Sovereign, self-hosted secure video meetings.
Growing geopolitical tensions push governments, defense, and financials toward sovereign cloud solutions.
Defense ARR growing ~70% annually, expected to be 44% of Secure segment by 2027.
Total ARR is expected to grow from USD 113m (2024) to USD 178m (2027e), implying a 16.7% CAGR.
Importantly, since 2022, Pexip has shifted away from competing directly with Zoom/Teams in video platforms to focus on interoperability and secure meeting solutions – niches where it can win.
Q1 2025 Earnings Expectations (May 7)
Analysts expect a solid quarter despite some FX headwinds:
Revenue: NOK 331m (+13% y/y)
EBITDA: NOK 88m (+38% y/y)
ARR: ~USD 116m (midpoint of guidance)
Key things to watch:
ARR momentum:
Confirm whether ARR growth stays within the USD 114–117m range, and commentary on underlying Secure & Custom vs. Connected Spaces trends.
Updated ARR and revenue guidance for Q2 and FY 2025.
Zoom and Teams Connect traction:
Update on sales momentum, particularly from the Zoom Marketplace channel and first wins with Connect for Teams Rooms.
Defense and Justice sector expansion:
New contract wins or upsells, particularly given strong momentum in defense (70% ARR growth in 2024) and justice systems.
Outlook for Rule of 40 ambition:
More color on timing and pathways to achieving the new long-term target of Rule of 40 (ARR growth + EBITDA margin).
Capital allocation discipline:
Updates on dividend plans vs. maintaining strategic flexibility (management defended a conservative cash position in Q4).
Risks to Monitor
Although the investment case appears solid, there are important risks to consider:
Currency exposure: USD/NOK fluctuations impact reported revenues and EBITDA. A stronger NOK reduces the reported value of USD-denominated revenues, while a weaker NOK boosts them. Since around 70% of Pexip's revenue is invoiced in USD, exchange rate movements can meaningfully impact quarterly performance.
Churn in legacy CVI business: partly offsets growth in new solutions.
Competitive pressure:
While market consolidation benefits Pexip today, competitors like Cisco (especially in Secure & Custom Spaces) still pose a risk if they prioritize this niche.
Macro environment risk:
Broader IT budget cuts, particularly in Europe and North America, could delay customer upgrades or new deployments, especially in non-defense sectors.
However, Pexip’s strong balance sheet, stable customer base, and strategic focus help mitigate these risks.
Final Thoughts
Pexip offers a balanced proposition, appealing to dividend-focused investors through strong cash flow generation and growing payout potential, while also attracting growth-oriented investors with its resilient ARR base and expanding market opportunities.
Heading into the Q1 earnings call, updates on ARR growth, the adoption of new Zoom and Teams products, and commentary around Secure Meetings and Private AI traction will be important for assessing future momentum.
Blending stable cash generation with recurring revenue growth, Pexip offers a compelling setup for investors seeking durable long-term value.
We'll be following the earnings call closely and will update after May 7.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research or consult a financial advisor before making investment decisions. The author may hold positions in the mentioned securities.