Earnings call transcript: Alarum Technologies sees Q1 2025 revenue drop, stock rises premarket

Alarum Technologies reported Q1 2025 revenue of $7.1 million, down from $8.4 million year-over-year, and net profit decreased to $400,000 from $2.8 million; however, premarket trading saw the stock rise 5.58% to $8.52, indicating investor optimism potentially tied to the company's focus on AI data collection infrastructure and strong relationships with large tech companies. Despite declining revenue and profit, Alarum forecasts Q2 2025 revenue of $7.9 million and adjusted EBITDA between $500,000 and $800,000, while continuing to invest heavily in AI infrastructure, which is impacting gross margins in the short term.

Analysis

Alarum Technologies Ltd. (ALAR) reported a challenging Q1 2025, with revenue declining to $7.1 million from $8.4 million in Q1 2024, and net profit significantly decreasing to $400,000 from $2.8 million year-over-year. Adjusted EBITDA also fell to $1.3 million from $3.2 million. Despite these figures, the company's stock experienced a 5.58% increase in premarket trading, suggesting investor focus on its strategic pivot towards AI data collection. InvestingPro analysis indicates potential undervaluation with a P/E ratio of 9.24 and EV/EBITDA of 5.3. Management attributes the current financial performance to strategic reinvestment of earnings into scaling AI data collection infrastructure and strengthening its proxy network, which has temporarily lowered non-IFRS gross margins to 69.4% from 80.4%. Positively, shareholders' equity rose to $27.6 million from $17.1 million, and cash reserves increased by nearly 60% to $24 million, providing a strong foundation for these investments. The company is forecasting Q2 2025 revenue of $7.9 million (plus/minus 3%) and adjusted EBITDA between $500,000 and $800,000, indicating an anticipated sequential revenue pickup but continued margin pressure from investments. CEO Sikhar Daniel emphasized the critical role of data in AI and the company's commitment to leveraging its strong relationships with large tech companies and expanding collaborations, noting that new logos and upselling from current customers are driving demand. Key risks include the impact of declining margins on short-term growth, the dynamic web data scraping market, resource strain from heavy AI investments, geopolitical exposure with 95% of operations in Israel, and increasing competition.

Key Decisions for Investors

• Investors should weigh the current decline in profitability and revenue against the company's strategic investments in the high-growth AI data collection sector and its potential undervaluation indicated by P/E and EV/EBITDA ratios.
• Monitor the company's ability to convert its infrastructure investments and growing customer engagements into sustainable revenue growth and improved gross margins in subsequent quarters, particularly in light of the Q2 2025 guidance suggesting continued EBITDA pressure.
• Consider the geopolitical risk associated with the concentration of operations in Israel and the competitive landscape in data collection and proxy services when assessing long-term prospects.
• Closely observe the progress of collaborations with large tech companies and the success of new product offerings like the website unblocker as key indicators of the strategic pivot's effectiveness.