ams OSRAM is an Austrian fully integrated semiconductor company listed on the SIX Swiss Exchange, as for writing of this article it’s trading at 8 CHF per share. The company designs, manufactures, and sells lighting and sensor technologies.

Company has three main units:

1. Opto Semiconductors (OS) {41% of revenue}: LEDs, laser diodes, and other light-emitting components for automotive (e.g. headlights, LiDAR), industrial, medical, and consumer applications.

2. CMOS Sensors & ASICs (CSA) {31% of revenue}: Sensors and integrated circuits used in things like smartphone cameras, display management, 3D sensing, and medical imaging.

3. Lamps & Systems (L&S) {28% of revenue}: Traditional specialty lamps and lighting systems for automotive, entertainment, and industrial markets. Basically aftermarket car care supplies like headlights.

Short History of asm OSRAM

Alexander Everke (CEO 2020 - March 2023)

• Completed the €4.6bn OSRAM acquisition (2020), creating ams OSRAM. One of the most leveraged deals in European semis.

• Spent 2021-2022 selling off non-core L&S businesses (Fluence, AMLS, Traxon, DS) to reduce the sprawl inherited from OSRAM.

• Simultaneously bet big on microLED, starting construction of a new 8” fab in Kulim, Malaysia, targeting a major consumer “Apple “.

• By 2022 the cracks were showing, macro headwinds, automotive supply chain chaos, and falling revenue led to the first €287m goodwill impairment.

• Stepped down March 2023 with the company heavily indebted, market cap well below book value, and the microLED bet still unresolved.

Aldo Kamper (CEO April 2023 - present)

• Inherited a mess: revenues falling, debt €2.5bn, and an entire management board that was replaced within months.

• Launched the “Re-establish the Base” programme in summer 2023, cutting costs, slimming the board to just CEO/CFO, and targeting €300-400m of non-core business for disposal.

• 2023 brought a catastrophic €1,313m goodwill impairment and an emergency debt refinancing/capital raise at year-end.

• February 2024: the key microLED customer walked away, ams OSRAM cancelled the programme entirely, taking a further €576m hit. (Apple canceling MicroLED on Apple Watches).

• Continued asset disposals (Passive Optical Components, OSRAM Russia) and pushed RtB cost savings ahead of schedule.

• April 2025: launched an accelerated deleveraging plan targeting €500m+ in proceeds.

• Sold Specialty Lamps to Ushio (€100m, 2025) and agreed to sell the non-optical sensor business to Infineon for €570m (Feb 2026).

• Company is now repositioning as a leaner “digital photonics” semiconductor business, with leverage slowly coming under control.

The Growth Avenues for 2026 and Beyond

The company has reframed its entire identity around a concept they now call “Digital Photonics” the idea that every major technology megatrend of the next decade (autonomous driving, AI, AR glasses, robotics, smart health, AI Data Centres) runs on light either emitting it, detecting it, or using it to communicate. That framing sits over the top of six specific growth vectors that management repeatedly discusses.

1. Automotive Smart Lighting: Their biggest near-term driver. EVIYOS (25,000-pixel intelligent headlamps) already has €500m+ in design wins. Cars are adding more LED content every cycle and ams OSRAM is the global #1 here.

2. AR Smart Glasses: Their micro-pixel LED/laser technology (”Digital Light”) is a major asset to build the projection engine inside AR glasses. Design wins already secured; mass market expected before 2030.

3. AI Data Center Optical Interconnects: The newest and most speculative angle. As AI scales up, copper wiring between chips can’t keep up, the industry is switching to laser-based optical connections. ams OSRAM is in an advantageous position to create the lasers needed. Early stage but a very large market.

4. Health & Biosensing: Optical sensors that measure your body non-invasively (heart rate, SpO2, eventually blood glucose). Already in the Apple Watch. Growing as wearables get more sophisticated. Also have a strong position in next-gen photon-counting CT scanners for hospitals.

5. Industrial Automation & Robotics: Robots and factory automation need 3D sensing and machine vision. ams OSRAM supplies the sensors and cameras that make this work. Also a niche leader in grow-lighting LEDs for vertical farming.

6. Consumer Smartphone Sensors: Not a growth story per se, but a steady cash-generating base. They supply ambient light, proximity and 3D sensors to Android OEMs and are winning new design sockets as phones add more sensor features.

My Take

For the five years following the OSRAM acquisition, ams OSRAM has been stumbling from one crisis to the next, divesting non-core businesses, burning cash, absorbing massive goodwill impairments, navigating cyclical downturns, replacing its entire management team, and suffering from Apple cancelling what was supposed to be the company’s defining growth programme. It has been, by any measure, an ugly stretch. That’s why in the last five years the stock is down 92%.

But things are slowly starting to turn. The company is ahead of its own plan on deleveraging, cost-cutting is running ahead of schedule, and non-core disposals are generating real proceeds. Perhaps most tellingly, management has shifted its language from pure survival mode to a genuine discussion of growth opportunities.

Those opportunities are compelling. The most credible near-term driver is automotive intelligent lighting. The design wins are secured, the technology is proven in production, and the regulatory tailwinds are real like adaptive lighting mandates in Europe, ADAS adoption globally.

The most exciting longer-term drivers are AR/smart glasses, robotics and AI data center optical interconnects. ams OSRAM does not have finished products in these markets yet, but their underlying technology in micro-pixel emitters, optical sensors, and laser components puts them in a genuinely strong position to develop them.

Current CEO, Kamper has handled the restructuring well, the question is whether he can transition the company from stabilisation to expansion.

The central risk is straightforward: if most of these growth ramps fail, take longer than expected, or if a key customer again cancels a cornerstone program, the company is left with stranded capex and R&D, exactly what happened with microLED, and exactly the kind of setback a balance sheet this stretched can ill afford.

Investment Scenarios:

The market remains pessimistic about ams OSRAM’s prospects, and the stock likely reflects that as it appears cheap on most metrics, but for reasons that are not hard to understand given the recent history.

The range of outcomes from here are favourable:

• In the bear case, the company fails to generate meaningful growth and remains defined by restructuring and debt reduction. With little upside priced in, the stock drifts as it has for the last year and turns into a value trap rather than a recovery story.

• In the base case, balance sheet improvement continues on track and automotive intelligent lighting begins to deliver revenue growth. The stock re-rates higher as the market gains confidence that the business has stabilised and is growing again, not a home run, but a meaningful return from today’s depressed levels.

• In the bull case, ams OSRAM executes the restructuring cleanly and successfully enters one or all of the high-growth markets, AR smart glasses, robotics and/or AI data center optical interconnects. If either of those ramps materialises at scale, the stock appreciation could be very significant, as the market would be repricing a niche semiconductor restructuring story into a structural growth story with a credible technology moat.

The asymmetry is interesting. The downside appears limited given how much bad news is already priced in. The upside, if management executes, is disproportionately large.

On that basis, initiating a starting position and then sizing up or down based on how the technology ramps and management execution develop over the coming quarters seems like a sensible approach. The next few earnings cycles will be telling.

“That’s it! Thank you very much for reading! You can subscribe and like to support my research and to receive my research right to your inbox. Please make sure to reach out if you have any questions or if you want to chat about markets.”

Disclaimer: The content published here represents my personal opinions and is provided strictly for informational and educational purposes. Nothing on this Substack constitutes financial, investment, legal, or tax advice, nor should it be relied upon as such. I am not a licensed financial advisor, and I do not make recommendations to buy, sell, or hold any securities. The information presented may not be complete or accurate, and it may change without notice. Past performance is not indicative of future results. You are solely responsible for your own investment decisions, and you should always conduct your own research or seek advice from a qualified professional before making financial decisions. I may hold positions in securities mentioned, but I am under no obligation to update or disclose changes.

From my initial report about RCAT in December the stock is up ~(+115%).

I’m very happy with Red Cat’s full year earnings print. (RCAT) Delivered Record Q4 Revenue of $26.2M, Full-Year Revenue Up 161% Y/Y; Massive Manufacturing Scale-Up which Positions Company for Breakout 2026.

Financial Results For FY2025

Revenue

• Fourth quarter 2025 total revenue of $26.2 million, up ~1,985% Y/Y from $1.3 million in Q4 2024

• Q4 revenue increased sequentially by 172% from $9.6 million in Q3 2025

• Full-year 2025 total revenue of $40.7 million, up 161% Y/Y from $15.6 million in FY2024

• Q4 annualized revenue run rate exceeded $100 million

• Revenue beat: Q4 actual of $26.2M vs. consensus estimate of $20.9M, a 25%+ revenue surprise

Profitability

• Q4 gross profit of $1.1 million vs. gross loss of ($1.0M) in Q4 2024 a meaningful inflection to positive territory

• Q4 gross margin of 4.2%, up ~85% Y/Y, though down sequentially reflecting mix and ramp dynamics

• Full-year gross margin of 3.1%, up 332 bps Y/Y, driven by scale benefits and manufacturing improvements

• Q4 Adjusted EBITDA of ($17.8M) vs. ($9.2M) in Q4 2024, reflecting deliberate investment in headcount and capacity

• Full-year net loss of ($72.1M) vs. ($53.5M), driven by planned expansion spending across all domains

• Q4 EPS of ($0.17), an improvement from ($0.33) in Q4 2024 despite the wider loss base

Operating Expenses & Investment

• Full-year operating expenses of $67.9 million, up from $32.9 million in FY2024

• R&D spend of $17.9 million, up 122% Y/Y investments in AI/ML, autonomy, and cross-domain interoperability

• Headcount increased 85% Y/Y, focused on engineers and corporate functions to support growth

• Stock-based compensation of $10.6 million (26% of revenue) vs. $5.7 million (37% of revenue) in FY2024

Balance Sheet

• Cash and cash equivalents of $167.9 million, up from $9.2 million at year-end 2024

• Accounts receivable of $26.2 million, up from $0.5 million reflecting rapid revenue scaling

• Inventory and prepaid inventory of $30.4 million, up from $13.6 million proactive supply chain positioning

• Total assets of $273.7 million, up from $55.6 million

• Convertible notes payable of $4.5 million; long-term operating lease liabilities of $12.6 million

• Stockholders’ equity of $245.8 million, up from $50.1 million

• Accumulated deficit of ($196.8M)

Key Financial Metrics at a Glance:

Analysis of Q4 and Full Year Results

Revenue Trajectory: From Startup to Scale

The headline number is extraordinary: Q4 revenue of $26.2 million represents roughly a 20x increase over Q4 2024’s $1.3 million. While this percentage growth is eye-catching primarily because of the low prior-year base, the sequential story is arguably more instructive. Revenue grew 172% from Q3 to Q4, accelerating from the $9.6 million reported last quarter. This is not a seasonal blip; it reflects a genuine production ramp as Red Cat’s expanded manufacturing facilities came online and key defense programs moved from development into delivery.

The full-year number of $40.7 million, up 161% Y/Y, tells the story of a company that was largely pre-revenue at scale 12 months ago and is now delivering real product at real volume. The Q4 annualized run rate exceeds $100 million, which is significant because it provides a credible foundation for the Street’s 2026 revenue estimates in the $100-170 million range.

Perhaps most importantly, the revenue beat was substantial. Consensus expected approximately $20.9 million for Q4, and Red Cat delivered $26.2 million a 25%+ revenue surprise. For a company at this stage, beating by that magnitude signals that demand is not the bottleneck; production capacity and contract timing are.

Gross Margins: Positive but Early

Red Cat achieved positive gross margins for both Q4 (4.2%) and the full year (3.1%), which represents a meaningful inflection from the negative gross margin territory the company occupied in FY2024. The year-over-year improvement of 332 basis points at the full-year level is encouraging.

However, margins remain thin, and the sequential decline from Q3 reflects the reality of ramping new production lines, absorbing fixed costs in facilities that are not yet at full utilization, and the mix dynamics inherent in early-stage defense manufacturing. Management acknowledged that gross margins will remain volatile on a quarter-to-quarter basis as they scale. The critical question for 2026 is whether the company can begin demonstrating operating leverage as production volumes increase particularly as the Black Widow line scales toward 1,000 units per month and USV production begins.

Cash Position: War Chest Assembled

The transformation of the balance sheet over the past year is remarkable. Cash grew from $9.2 million to $167.9 million, primarily driven by a $234 million equity raise and $7.4 million from option/warrant exercises, partially offset by $89 million in operating cash burn and $6.6 million in capex. While the company is clearly burning cash at a significant rate, the war chest provides substantial runway to fund the USV division build-out (estimated at $30-40 million), strategic acquisitions, and inventory investments without needing to return to the capital markets in the near term.

The accounts receivable balance of $26.2 million (up from $0.5 million) is worth monitoring closely. While it reflects the rapid scaling of deliveries, it also means the company is extending meaningful credit to defense and government customers. Collection timelines for government contracts can be extended, and this will be a key working capital dynamic to watch.

Manufacturing Scale-Up: The Factory Is the Weapon

Red Cat’s facility expansion from 36,000 to 254,000 square feet represents a 520% increase in manufacturing capacity across four states. The COO’s framing that “the factory is the weapon” is particularly apt in the current defense landscape, where the ability to produce at scale is as strategically important as the technology itself.

Key production milestones include the Salt Lake City facility producing 50 Black Widow drones per day on a single shift, with room to triple lines and add shifts. The FlightWave facility in Torrance is utilizing only one-third of its space to produce 125 Edge 130 drones per month. The Georgia boat factory for Blue Ops went operational in February 2026 with 155,000 square feet and capacity for 100+ USVs per year. This manufacturing infrastructure is not just about meeting current orders it’s about positioning Red Cat to absorb large-scale DoD procurement programs like Drone Dominance, which envisions 350,000 FPV drones.

Earnings Call Takeaways

Blue Ops: Maritime Domain Expansion

The CEO spent considerable time discussing Blue Ops, Red Cat’s maritime USV division launched roughly a year ago. The speed of execution has been impressive: from initial design last August to autonomous boats in the water by December, and a Georgia factory operational by February 2026. The Variant 7 USV integrates both short-range counter-drone capability (ACS Bullfrog, effective to 1,500 yards against FPVs and Shaheds) and long-range capability (Aeon Zeus, 20 km range).

This is strategically significant. Red Cat’s previous drone systems covered approximately 30% of the Earth’s surface; with USVs, the company can now operate across 100% of the globe. The timing is fortuitous given the escalation in the Strait of Hormuz, where USVs offer a compelling alternative to deploying billion-dollar warships for convoy escort missions. The CEO was direct about the opportunity: initial USVs originally planned as demos are now being redirected to customers as quickly as they can be built.

Ukraine: Battlefield Validation

The COO’s report from his trip to Ukraine (he returned the day before the earnings call) was arguably the most impactful segment. Red Cat has established an office in Kyiv, tested multiple systems at the front, and received a Letter of Request from Ukrainian forces to begin replacing Chinese-made ISR drones. The COO shared that Ukrainian forces are consuming approximately 350,000 Chinese ISR drones per year a massive addressable market if Red Cat can capture even a small fraction.

Beyond direct sales, the Ukraine engagement serves as a real-world proving ground. Red Cat has entered into a joint development agreement with a Ukrainian state-owned partner to bring battle-proven technology to its USV platforms. This is reportedly the first such agreement with a non-governmental entity, which could provide significant technology transfer advantages as the company develops next-generation systems.

Drone Dominance: Positioning for the Long Game

Management was candid that Red Cat did not advance past Gauntlet One of the Pentagon’s Drone Dominance competition. However, the CEO framed the broader opportunity compellingly: the program envisions 350,000 FPV drones, which at the typical 20:1 FPV-to-ISR ratio would require approximately 17,500 ISR drones or 8,750 SRR (Short Range Reconnaissance) systems. As the Black Widow is a sensor/ISR platform, Red Cat stands to benefit from the program regardless of the FPV gauntlet outcomes.

Guidance: Deliberately Conservative

Red Cat is not providing formal 2026 guidance at this time, citing the need to have government contracts in hand before committing to numbers. However, the CEO offered an important signal: with Street estimates ranging from $100 million to $170 million for 2026, management indicated they are “very comfortable in the top half” of that range. This implies management confidence in at least $135 million+ in 2026 revenue, which would represent more than 230% growth from FY2025.

The company also committed to updating the market on guidance as soon as contracts are finalized, rather than waiting for the next quarterly call. This approach is prudent given the uncertainty around contract timing during the previous continuing resolution period.

Geopolitical Tailwinds

The timing of the Strait of Hormuz escalation, days after Red Cat’s Innovation Day, has created a surge of inbound interest. The CEO described receiving “panic questions” alongside more structured RFP inquiries from Gulf States and Navy contacts. Counter-drone capability is the most urgent demand area, and Red Cat’s Variant 7 USV with its dual counter-drone configuration is positioned to address this need. The 2026 defense budget plus an additional $150 billion, with potentially another $50 billion related to Iran, represents a dramatically expanded funding environment for exactly the types of systems Red Cat produces.

What I’m Watching Going Forward

Gross Margin Trajectory. The path from 3-4% gross margins to something resembling 20-30%+ is the single most important financial metric for Red Cat over the next 12-18 months. As production scales and fixed cost absorption improves, margins should expand meaningfully. Any quarter that shows material sequential improvement will be a strong signal that the business model is working at scale.

SRR Full Rate Production Contract. The CEO indicated this contract is expected “any day.” Securing the OTA full rate production contract for Black Widow through the SRR program would be the single largest de-risking event for the 2026 revenue outlook and would likely trigger a re-rating.

USV First Deliveries. Management is targeting first USV customer deliveries in 2026. Successful delivery and adoption of USVs would validate the multi-domain strategy and open a new, potentially very large revenue stream.

“That’s it! Thank you very much for reading! You can subscribe and like to support my research and to receive my research right to your inbox. Please make sure to reach out if you have any questions or if you want to chat about markets.”

Disclaimer: The content published here represents my personal opinions and is provided strictly for informational and educational purposes. Nothing on this Substack constitutes financial, investment, legal, or tax advice, nor should it be relied upon as such. I am not a licensed financial advisor, and I do not make recommendations to buy, sell, or hold any securities. The information presented may not be complete or accurate, and it may change without notice. Past performance is not indicative of future results. You are solely responsible for your own investment decisions, and you should always conduct your own research or seek advice from a qualified professional before making financial decisions. I may hold positions in securities mentioned, but I am under no obligation to update or disclose changes.

Financial Results For FY2025

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Revenue

• Fourth quarter revenue of $394.6 million, up 25% Y/Y, exceeding the midpoint of guidance by $14 million

• Organic growth of 28% Y/Y when excluding political candidate, LiveIntent, and Marigold’s Enterprise Business revenue

• Full year 2025 revenue of $1.305 billion, up 30% Y/Y (27% on an organic basis)

• 16th consecutive quarter of greater than 20% revenue growth

Profitability

• Q4 Adjusted EBITDA of $95.1 million, up 35% Y/Y, with margins expanding 174 bps to 24.1%

• Full year Adjusted EBITDA of $278.7 million, up 44% Y/Y, with margins expanding 217 bps to 21.4%

• 20th consecutive quarter of expanding Adjusted EBITDA margins on a Y/Y basis

• Achieved positive GAAP net income of $6.5 million in Q4, representing a 1.7% margin

Cash Flow

• Full year operating cash flow of $198.9 million, up 49% Y/Y

• Free cash flow of $164.7 million, up 78% Y/Y

• FCF margin of 12.6%, up from 9.2% in FY2024

• FCF to Adjusted EBITDA conversion of 59%

Customer Metrics

• Total scaled customers grew 14% Y/Y to 602

• Super scaled customers ($1M+ spend) grew 24% Y/Y to 184

• Scaled customer ARPU of $625K, up 8% Y/Y

• Super scaled customer ARPU of $1.8 million

• 9 of the top 10 industry verticals grew over 20% on a TTM basis

• Direct platform revenue mix of 74%

• Quota carrier headcount of 198, up from 180 Y/Y

Balance Sheet

• Cash and cash equivalents of $319.8 million

• Long term borrowings of $197.1 million

• Total assets of $1.504 billion

Results vs. My Prior Estimates

I’m very happy with Zeta’s FY2025. They beat both the Street and my own estimates in both revenue and EBITDA:

Revenue: $1,305M (actual) vs $1,242M (my estimate)

EBITDA: $279M (actual) vs $259M (my estimate)

This continues the pattern I highlighted in my initial report Zeta has a consistent track record of setting conservative guidance and then over-delivering. The company has now beaten revenue estimates for 18 consecutive quarters, and the magnitude of the beats has not diminished even as the revenue base has scaled past $1.3 billion. Importantly, the outperformance is not just on the top line. EBITDA margins expanded faster than expected, and the company achieved a full year FCF figure of $165M versus the $131.5M that was guided at the start of the year a remarkable 25% beat on cash flow.

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Analysis of Q4 and Full Year Results

Revenue Quality Continues to Improve

What stands out most in this quarter is the quality of revenue growth. Organic revenue (excluding political, LiveIntent, and Marigold’s Enterprise Business) grew 28% in Q4 and 27% for the full year. This is not acquisition-driven headline inflation the core business is genuinely accelerating. The direct platform revenue mix held steady at 74%, which is important because direct revenue carries stronger operating leverage and is more predictable.

Vertical diversification also continued to strengthen. Nine of the top ten industry verticals grew over 20% on a TTM basis, with Travel & Hospitality, Advertising & Marketing, Automotive, Consumer & Retail, and Telecom being the five fastest growing. This breadth of contribution is a meaningful de-risking factor and reduces the company’s exposure to any single sector downturn.

Customer Economics Are Compounding

The customer metrics tell a powerful story. Super scaled customers (those generating at least $1M in TTM revenue) grew 24% Y/Y to 184. This cohort now represents approximately 90% of total revenue, up from roughly 70% at the time of the IPO. The ARPU for this group stands at $1.8M, which is approximately 17x that of the $100K–$1M scaled cohort ($104K quarterly ARPU). Super scaled customers also use an average of 3.3 channels on the platform versus 1.9 for the lower tier, confirming the thesis that deeper platform adoption drives materially higher spend.

The cohort analysis provided in the supplemental presentation further reinforces this. Customers that have been with Zeta for 5+ years generate an average ARPU of $3.9M up from $2.8M in FY2024. Meanwhile, approximately 90% of FY2025 revenue came from customers who have been with Zeta for more than one year. This stickiness, combined with an expanding wallet share, underpins the durability of the growth trajectory.

Net revenue retention hit a record 120% during FY2025, which the CEO highlighted on the earnings call. This is a significant inflection from the roughly 115% average the company has maintained historically and signals that existing customers are not only staying but accelerating their spend.

Margin Expansion Is Structural, Not Cyclical

The Adjusted EBITDA margin story deserves particular attention. Full year margins expanded 217 bps to 21.4%, and Q4 margins hit 24.1% marking the 20th consecutive quarter of Y/Y margin expansion. This is not a one-time cost-cutting exercise. The company is demonstrating genuine operating leverage as it scales. GAAP cost of revenue as a percentage of total revenue actually improved slightly to 39.4% for the full year (from 39.7% in FY2024), even as the business absorbed the LiveIntent and Marigold acquisitions.

The Q4 achievement of positive GAAP net income ($6.5M, 1.7% margin) is a notable milestone. While modest in absolute terms, this marks a turning point the company is guiding for positive GAAP net income for the full year 2026, and management indicated on the earnings call that they expect to be net income positive every quarter going forward. Stock-based compensation continued to decline as a percentage of revenue, dropping to $177.8M (13.6% of revenue) from $195.0M (19.4%) in FY2024 a meaningful improvement from the 51% ratio seen in FY2022. The trajectory here is encouraging and directly addresses one of the most common investor concerns around Zeta.

Cash Generation Is Inflecting

Free cash flow of $164.7M represented 78% growth Y/Y and a 12.6% margin, up from 9.2% in FY2024. The FCF-to-EBITDA conversion ratio of 59% is solid, and notably, the company has identified working capital headwinds from agency business growth as a temporary drag on conversion if you adjust for these, conversion rates are even higher (76% on a working-capital-adjusted basis for FY2024–FY2025). Management is guiding for $231M of FCF in 2026 and targeting $371M+ by 2028, with a 65% conversion ratio. If they achieve this, it would represent a nearly 4x increase in FCF from 2024 levels in just four years.

Earnings Call Takeaways

Athena by Zeta The AI Agent Opportunity

The CEO spent considerable time discussing Athena, Zeta’s AI agent built on top of the Zeta Marketing Platform. He described the ZMP as a “747” powerful but complex to operate and Athena as the tool that makes it easier for clients to “fly the plane.” Early adopters are reporting significant time savings on segmentation and targeting, as well as improved ROI. The company confirmed it is on track to make Athena generally available by Q1 2026.

The monetization strategy for Athena is not yet fully defined, and management was candid that they are not counting on meaningful revenue contribution from Athena in 2026 guidance. However, the CEO noted that customers are responding very positively, and the percentage of enterprise clients using more than one use case on the ZMP grew 80% Y/Y in Q4. Given that customers who adopt multiple use cases see 200–300% revenue uplift on average, Athena’s potential to accelerate cross-selling is a material upside driver that is not yet priced into guidance.

LLM Narrative

The CEO, David pushed back on the narrative that LLMs will disrupt enterprise software companies, arguing instead that they will drive efficiency gains that more than offset the cost of integration. He compared LLMs to infrastructure providers like AWS or Snowflake they become part of the technology stack rather than a competitive threat. Especially since: Zeta’s revenues are tied to volume of decisions made not seats, meaning AI driven corporate jobs cuts wont effect Zeta’s top line.

One Zeta Sales Model Gaining Traction

The “One Zeta” approach selling the platform as a unified system across data management, marketing automation, and programmatic engagement is clearly gaining momentum. The number of clients using more than one use case grew 80% Y/Y. Currently, 25% of scaled customers use more than one use case, which means there is substantial room for expansion. The CEO also highlighted a major telecom win worth $39M and noted that $40M in deals have already closed from leads generated at the Zeta Live event, with $130M of value from a pipeline of 200 opportunities.

Macro Resilience

When asked about tariff and macro risk, the CEO was direct: Zeta’s 600% ROI on ad spend doesn’t just insulate the company from economic headwinds it actively drives growth during uncertainty. Clients focused on maximizing marketing ROI are consolidating spend toward platforms that can demonstrate measurable returns, which benefits Zeta. He noted that Fortune 500 companies have shifted their focus from simple revenue-to-marketing ratios to demanding 500–1,000% ROI on ad spend, and Zeta’s platform is purpose-built to deliver on that demand.

GAAP Profitability Path

The CFO confirmed that Q4 2025 marked a turning point for GAAP profitability, with the company expecting to be GAAP net income positive every quarter from here. For FY2026, they are guiding to GAAP EPS of $0.02–$0.04. While the absolute numbers are small, this is a critical milestone for broadening the investor base and eliminating a long-standing bear argument.

What I’m Watching Going Forward

Athena Adoption Rates. While not yet in guidance, the pace of Athena rollout and its impact on cross-selling and NRR will be the most important leading indicator of whether Zeta can sustain 20%+ growth beyond 2026.

GAAP Profitability Consistency. The company has guided to positive GAAP net income for FY2026. Consistent quarterly delivery on this commitment will broaden the investor base and should support multiple expansion.

SBC Trajectory. The decline from 51% of revenue in FY2022 to 13.6% in FY2025 is encouraging, but I want to see continued progress toward the 10–12% range, which would be more in line with mature SaaS peers.

Political Revenue. The $15M guide for 2026 is deliberately conservative given the off-cycle year. Any upside here flows directly to the bottom line and could contribute to further guidance raises.

Conclusion

Zeta’s F4Q’25 results and updated guidance reinforce the investment thesis I laid out in my initial report. The company is executing on all cylinders: revenue growth is durable and broad-based, margins are expanding structurally, cash generation is inflecting sharply, and the customer economics are compounding in a way that builds the moat over time. The achievement of GAAP net income in Q4 and the commitment to full year GAAP profitability in 2026 removes a key overhang, while the Zeta 2028 targets now upgraded for the Marigold acquisition provide a clear multi-year framework that the company is tracking ahead of.

The broader SaaS sell-off has weighed on Zeta, but I believe the company is fundamentally insulated from the AI disruption fears pressuring the sector. Unlike traditional SaaS businesses that price on a per-seat basis where AI-driven workforce automation poses a direct threat to revenue Zeta’s pricing is tied to the volume of marketing decisions executed through its platform. More importantly, Zeta’s proprietary data cloud, built on 245 million US identities and trillions of signals, represents a structural moat that AI cannot easily replicate or disintermediate. If anything, AI adoption is a tailwind: as enterprises demand higher ROI on marketing spend, Zeta’s AI-powered platform becomes more valuable, not less. I expect the market to recognise this differentiation as the company continues executing into 2026, and for the multiple to re-rate accordingly. Zeta continues to prove that it can deliver durable, predictable, and profitable growth at scale, exactly what it promised.

“That’s it! Thank you very much for reading! You can subscribe and like to support my research and to receive my research right to your inbox. Please make sure to reach out if you have any questions or if you want to chat about markets.”

Disclaimer: The content published here represents my personal opinions and is provided strictly for informational and educational purposes. Nothing on this Substack constitutes financial, investment, legal, or tax advice, nor should it be relied upon as such. I am not a licensed financial advisor, and I do not make recommendations to buy, sell, or hold any securities. The information presented may not be complete or accurate, and it may change without notice. Past performance is not indicative of future results. You are solely responsible for your own investment decisions, and you should always conduct your own research or seek advice from a qualified professional before making financial decisions. I may hold positions in securities mentioned, but I am under no obligation to update or disclose changes.

I’m introducing a new newsletter the “Sniff Test".

Brett Caughran ex-PM at Citadel and Maverick:

On the Purpose of the Sniff Test

“The goal is to kill the idea before it kills your schedule.”

Opportunity Cost

“If you spend 100 hours on every idea, you will only look at 20 stocks a year. If you can kill an idea in 4 hours, you can cycle through hundreds of names to find the few that truly deserve a deep dive.”

Okay with the explanation out of the way, let’s get into the sniff test of DraftKings

DraftKings Market Data: The Institutional Exit

The immediate “blood test” for DraftKings shows a stock in the middle of a violent institutional re-rating. While the 3-Month Average Daily Volume (ADV) sits at 13.9 million shares, the volume on last Friday was hitting 65.8 million shares.

This 4.7x spike in volume, paired with a 13.5% price collapse, tells us this isn’t a retail flush. Large-scale institutional funds are liquidating positions, and they have more than enough liquidity to do so. At a $10.7 billion Market Cap, DKNG is a deep enough vehicle that funds can exit in size without trapping themselves, which accelerates the downward pressure we’re seeing.

Business Model

DraftKings operates a digital gambling platform that monetises user engagement across sports betting, online casino, and fantasy sports. The core business model is to take a statistical edge on betting activity while increasing customer lifetime value through a multi product ecosystem.

The largest revenue driver is online sportsbook. Users place wagers on sporting events and DraftKings sets odds that embed a house margin. Revenue is determined by total betting volume, known as handle, multiplied by the hold rate. Product innovation such as live betting and same game parlays has structurally increased hold and engagement, making this segment the main growth engine.

The second key pillar is iGaming, which includes online slots, blackjack, and roulette. This is structurally more attractive than sportsbook because margins are higher, outcomes are less volatile, and customer behaviour is more recurring. A major part of the strategy is cross selling sportsbook customers into casino, which significantly increases lifetime value.

The Main Model

Revenue Growth

Revenue growth over the last nine years has been incredible with annual high double digits growth. Having said that we see that from 2022 onwards there is a deceleration in revenue growth rate. The street estimates suggest this trend will only continue into 2030 where growth is estimated to be 7.2%. This is expected as DraftKings is going though a transition from high growth and not profitable to profitable and high margins. (It’s a rocky transition for DKNG)

According to estimates most of the growth has been organic even though DraftKings has made the acquisitions notably: SBTech in 2020, Diamond Eagle Acquisition Corp 2020 and Golden Nugget Online Gaming (GNOG) 2022.

Margin Trajectory

Margin trajectory is a complicated question for DraftKings. While some metrics are improving other aren’t:

Looking at the last 5 years of margin and incremental margin trajectory. We see gross profit margin improving from FY2022: 3.8% to FY2023: 37.5% to FY2024: 38.1%, at the same time incremental margin has expanded from 26.9% to 40.3%. EBITDA margins have been very consistently improving since 2020, although incremental margin improvement in FY2024 fell to less than half from of previous year to 24.7%. FCF margins were improving until 2023 but took a dive in 2024 especially incremental margin what fell from 28.5 to 5.6%. Margin story overall is mixed.

Valuation and Implied Assumptions

Profitability and Rapid Margin Expansion

The market valuation is currently anchored on a transition from a high-growth, deficit-running operator to a highly efficient cash generator. Specifically, the model assumes that DraftKings will reach a critical profitability inflection point in FY2026 with a double-digit EBITDA margin of 12.8%, eventually scaling to a significant 20% margin by FY2028. For a company that was operating at a -15.9% margin as recently as 2023, this priced-in assumption requires massive operating leverage. It implies that customer acquisition costs (CAC) will fall sharply as the user base matures and the brand moves toward dominance, allowing more of every revenue dollar to flow directly to the bottom line.

Steady-State Free Cash Flow Requirements

To justify the implied share price of approximately $23.60 (basically where it’s currently trading) the business must generate a steady-state UFCF of $1.35 billion by FY2028. This target is supported by an extremely lean operational assumption: CapEx are projected to remain at just 0.2% of revenue. This suggests that the market views DraftKings as a “capital-light” technology platform rather than a traditional heavy-infrastructure gaming company. Furthermore, Net Working Capital is expected to stabilize at 2.9% of revenue, indicating a highly optimized cash cycle that doesn’t require significant reinvestment to maintain its scale.

Terminal Value and Market Perception

A massive portion of DraftKings’ current value roughly 77.5% of the total Enterprise Value is derived from the Terminal Value (cash flows occurring after 2028). This back-weighted valuation is typical for growth stocks, but it highlights the stock’s sensitivity to long-term growth estimates. The model utilizes a 3.0% long-term growth rate in its assumption.

Sensitivity and Valuation Floor

Small shifts in long-term assumptions create significant price swings:

WACC & Growth: At a 13.0% discount rate and 3.0% terminal growth, the value is $23.60. If growth slows to 2.0%, the value falls to $19.70.

Exit Multiples: The model uses a conservative 7.0x EBITDA multiple to reach $23.25. A more aggressive 9.0x multiple would push the value to $28.72.

Market Position

The “Football Field” analysis shows the stock trading near its 52-week low of $21.01, well below its high of $53.61. Current pricing sits at the bottom of the modeled DCF range ($21.66 – $25.98), suggesting the market has stripped away speculative premiums and is now pricing the stock strictly on its ability to hit these 2028 margin targets.

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Timeline and Catalysts

Next 6–12 Months: The Execution Catalyst

The most critical event is the Virtual Investor Day (March 2, 2026), where management will likely defend their cautious 2026 guidance and provide a roadmap for Winning in Predictions. Over the next year, the full integration of Railbird Technologies will be essential for technical efficiency. Investors will also be hyper-focused on any state-level tax adjustments (like those in Illinois) and how the company uses its cash active share buybacks at these $21–$23 levels would serve as a powerful signal that management believes the stock is fundamentally undervalued.

Next Quarter: The Sanity Check

Next quarter, the Football Field chart will be put to the test as investors look at Monthly Unique Player (MUP) growth to see if it has truly plateaued. To support the modeled $23.60 fair value, the company must demonstrate an improving hold rate (the percentage of bets the house keeps) and show that marketing costs are finally shrinking as a percentage of revenue. Any beat on these operational metrics could quickly push the stock from its current floor toward the upper end of the valuation range.

Key Risks

Growth Stagnation The “MUP” Problem

Monthly Unique Payers (MUPs) have stalled at 4.8 million, suggesting the platform may be reaching a ceiling in existing markets. If DraftKings cannot reignite user growth, reaching the projected $9.6 billion revenue target for 2028 becomes entirely dependent on squeezing more money out of a fixed user base a difficult strategy in a competitive market.

2. Guidance Credibility & Margin Compression

Management’s recent 8% revenue guidance miss for 2026 has created a credibility gap. Compounding this are state tax hikes, like those in Illinois, which directly eat into the bottom line. If more states follow suit, the goal of a 20% EBITDA margin could shift from a base-case assumption to an unattainable best-case scenario.

3. High-Stakes Competition in Predictions

The pivot into Prediction Markets is meant to be a $10 billion growth engine, but it pits DraftKings against deep-pocketed tech rivals like Robinhood and Coinbase. Unlike sportsbooks, these rivals have massive, existing user bases and could trigger a new marketing war that forces DraftKings to spend heavily, delaying their timeline for consistent free cash flow.

Verdict: WATCHLIST

DraftKings has shifted from a growth at all costs story to a high-stakes execution play, trading near its 52-week low of $21.01. The market is skeptical of management’s conservative 2026 guidance and stalling user growth.

DraftKings is a bet on whether a dominant sportsbook can successfully pivot into high-margin prediction markets to hit a 20% EBITDA margin by 2028. Even though the the stock is trading near its 52-week low of $21.01, I’d wait to see margin trajectory improvements into the next quarter to start thinking about investing.

What Would Change My Mind

Regulatory Dominoes: If more states follow Illinois in tripling gambling taxes, the 20% margin target becomes mathematically impossible.

Platform Fatigue: Evidence that users are shifting money into Predictions rather than adding new funds (cannibalization).

Competitive Re-acceleration: If marketing spend must stay high to fight off FanDuel or Robinhood, the lean cash flow thesis breaks.

“That’s it! Thank you very much for reading! You can subscribe and like to support my research and to receive my research right to your inbox. Please make sure to reach out if you have any questions or if you want to chat about markets.”

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Disclaimer: The content published here represents my personal opinions and is provided strictly for informational and educational purposes. Nothing on this Substack constitutes financial, investment, legal, or tax advice, nor should it be relied upon as such. I am not a licensed financial advisor, and I do not make recommendations to buy, sell, or hold any securities. The information presented may not be complete or accurate, and it may change without notice. Past performance is not indicative of future results. You are solely responsible for your own investment decisions, and you should always conduct your own research or seek advice from a qualified professional before making financial decisions. I may hold positions in securities mentioned, but I am under no obligation to update or disclose changes.

Saas Is Not Dead

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The Seattle Seahawks just won Super Bowl LIX!

Congratulations to all Hawks fans!

Investment Thesis

AI is reshaping the SaaS landscape, but it is not killing SaaS, it is separating strong moats from weak ones. Large-cap SaaS companies operate mission-critical systems with high switching costs, deep regulatory integration, and decades of hardened code and data. In these businesses, AI acts as a complement, not a replacement.

Smaller and mid-cap SaaS players with narrow functionality, low feature utilization, or weak lock-in are far more exposed to AI substitution and pricing pressure. As a result, AI adoption accelerates competitive divergence rather than sector-wide decline.

With SaaS multiples compressed across the board during the “SaaS Winter,” valuations now imply excessive long-term risk even for highly defensible platforms. This creates an opportunity to express an outperformance trade: large-cap SaaS outperforming small and mid-caps.

The thesis is implemented via a large-cap SaaS bask…

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Executive summary

Red Cat is an emerging US defense drone manufacturer positioned directly in front of two major shifts in global security. Warfare is moving rapidly toward unmanned systems, and rising geopolitical tension is driving structurally higher defense spending across the US and NATO. Red Cat’s platforms across Teal, FlightWave and Blue Ops place it in the slipstream of that demand.

A key catalyst is the US move to restrict Chinese drones. By late 2025 most Chinese drone imports could be blocked, forcing government agencies to pivot toward trusted American suppliers. Red Cat is one of the few smaller companies already approved within DoD and NATO procurement channels, giving it real leverage to this policy driven shift.

Despite this backdrop, the market is valuing the company as if these opportunities will not convert. Yet Red Cat has a strong net cash position, expanding manufacturing capacity, and early traction through programs like SRR Tranche 2 and the NSPA catalogue. If even a portion of expected demand materialises in 2026, the current valuation looks too low.

There is meaningful execution risk, but the combination of industry tailwinds, regulatory catalysts and a mispriced setup makes this a compelling investment opportunity.

Introduction

In 2019, the business underwent a restructuring and adopted the name Red Cat. Since then, Red Cat Holdings Inc and its subsidiaries have developed into a company focused on serving the drone industry. The group provides a range of products and operational solutions that support government customers across different parts of the unmanned vehicle market.

M&A history overview

Rotor Riot (Jan 2020)

Red Cat acquired Rotor Riot for $2 million. The company is a consumer-focused reseller of drones and drone parts sold primarily through its online storefront.

Fat Shark (Nov 2020)

Red Cat bought Fat Shark for $8.4 million. Fat Shark sells FPV electronics, best known for its goggles that give pilots a real-time video feed from onboard drone cameras.

Skypersonic (May 2021)

Red Cat acquired Skypersonic for $2.8 million. Skypersonic provides drones and software for remote inspection, enabling operations in confined or GPS-denied environments.

Teal (Aug 2021)

Red Cat purchased Teal for $10 million. Teal manufactures DoD-approved tactical drones used by the US military for reconnaissance, public safety, and inspection.

FlightWave (Sept 2024)

Red cat acquired FlightWave entirely with its common stock, worth of around $14 million. The Edge 130 propels Red Cat into a new defense and military growth opportunity with the VTOL tricopter, delivering intelligence, surveillance and reconnaissance.

Blue Ops (Aug 2025)

Red Cat Launches Maritime Division, Blue Ops, Inc., Appoints Barry Hinckley as President to Lead Expansion into Uncrewed Surface Vessels

Business segments

Red Cat only has one business segment following the closing and sale of the consumer segment in 2024, consisting of Rotor Riot and Fat Shark to Unusual Machines, Inc. According to the company 10-k: “The sale reflects our decision to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value.”

Rotor Riot and Teal were rolled up in an Enterprise segment.

The Enterprise segment is focused on US federal government agencies, particularity the DoD. The segment is focused on delivering integrated robotic hardware and software for a wide range of mission-critical applications. Its systems provide front-line warfighters, commanders, firefighters, and public safety teams with real-time situational awareness and actionable intelligence. The strategy centers on building and scaling a fully American-made family of unmanned systems.

Subsidiaries

Red Cat has 3 subsidiaries:

Teal Drones: Developing unmanned aircraft systems for the military and law enforcement.

FlightWave: Developing long-range, autonomous VTL drones and sensors.

Blue Ops: Developing uncrewed surface vessel in the marine segment.

What do each of them do?

Teal Drones

The crown jewel of Teal is the Black Widow. It’s a short range reconnaissance drone.

The Teal Black Widow is a rucksack-portable tactical quadcopter designed for short-range reconnaissance missions in contested environments. It weighs about 4.26 lbs and delivers more than 45 minutes of flight endurance with a communication range of roughly five miles. The platform uses a secure AES-256 encrypted link and a frequency-hopping radio system to maintain connectivity in electronic-warfare and jamming-heavy conditions. It is built for rapid field deployment, with a modular architecture that allows arms, payloads and other components to be quickly swapped or repaired by operators.

For sensing, the Black Widow integrates the Hadron 640R+ EO/IR payload, combining a 64-megapixel electro-optical camera with a Boson+ 640 radiometric thermal sensor to provide high-resolution imaging in both daylight and low-visibility conditions. The aircraft can operate in GPS-denied environments through visual-inertial odometry and onboard autonomy software, enabling navigation even when satellite signals are disrupted. It also supports pre-loaded mission execution with a low-signature “stealth mode” that lets the drone operate without emitting active communications.

FlightWave

The Edge 130 Blue is a lightweight military-grade VTOL tricopter designed to combine vertical takeoff with efficient fixed-wing flight.

Weighing about 2.65 lbs with a 130 cm wingspan, it can be assembled and launched by a single operator in roughly one minute. In forward flight the aircraft delivers more than two hours of endurance, while hover-only missions achieve around 30 minutes. Its cruise speed is approximately 15 m/s with a top speed near 27 m/s, and it can operate up to roughly 12,000 ft above sea level. The airframe uses FlightWave’s tilt-pod system to transition smoothly between hover and forward flight without interrupting operations and is designed to tolerate wind speeds of around 17 m/s.

For sensing and mission flexibility, the Edge 130 Blue supports quick-swap, Blue-UAS-approved payloads including EO/IR gimbals and mapping modules. Payloads can be interchanged without tools, enabling rapid reconfiguration in the field. Communications are encrypted using AES-level security, and the aircraft maintains secure, long-range connectivity through its tactical radio system. The platform’s modularity, VTOL capability and long endurance make it suitable for ISR missions requiring both vertical lift and efficient fixed-wing coverage within a compact, deployable system.

Blue Ops

The Variant 7 is a modular, expeditionary uncrewed surface vessel (USV) developed by Red Cat’s maritime division, Blue Ops, to provide long-endurance ISR and multi-mission capability. Measuring roughly seven meters in length and designed for rapid deployment, it delivers more than 60 hours of unmanned endurance with an operational range approaching 800 nautical miles depending on payload. The craft can exceed 39 knots in high-performance mode and maintains cruising speeds in the low-20-knot range, supported by a lightweight composite hull optimized for fast production. With a payload capacity of up to about 650 kg, the platform can be configured for ISR, strike, anti-ship, logistics, or UAV launch-and-recover roles, with mission kits and sensor packages swapped quickly without specialized tools.

For sensing and autonomy, the Variant 7 accommodates EO/IR modules, radar payloads, and maritime situational-awareness systems compatible with Blue-UAS requirements. The autonomy stack enables waypoint navigation, obstacle avoidance, and semi or fully autonomous mission execution, with encrypted communications designed to remain resilient in electronic warfare heavy maritime environments. The vessel is built for coastal and near-shore missions where small-form-factor unmanned systems offer tactical advantage. Overall, the Variant 7 delivers a compact, long-range and highly modular surface platform suited for naval ISR, coastal defense and unmanned operations.

Financials

(NASDAQCM:RCAT) is currently trading at around $7.3 per share, with 119 million shares outstanding the current market cap is around $892 million. The company has $206 million in cash and about $24 million in total debt, the EV is $709 million, which is lower than the market cap as the cash position is positive.

For financial year 2024 RCAT achieved $20.63 million in revenue. Gross profit was $2.2 million as COGS was -$18.43 million. The company is far from becoming profitable (we’re taking years) and made a loss of -$30.87 million in 2024. In 2025 the net loss is estimated to increase to -$55.91 million.

Modelling out the future earnings of RCAT is not a simple task. As you can see the quarter to quarter revenues fluctuations are ridiculous and unpredictable in the short term. Since the revenues depend on the government contracts and those are won or lost on unpredictable basis its difficult to estimate, Red Cat also does not provide detailed breakdown of their segments and unit deliveries of each type of drone they sell.

Looking at the balance sheet, the company is at a strong cash position. RCAT recently completed a stock offering, issuing 17,968,750 shares in total raising and $172.5 million. Currently, cash on the balance sheet is $206,425,996 and total debt is $23.8 million, net cash position is $183 million. The company burned though $30.87 million in FY2024, meaning assuming a flat projection RCAT can sustain its losses for around 6 years.

Valuation

Per Capital IQ Pro, Red Cat is currently trading at 19.81 TEV/Revenue 2025FY and at 4.92x TEV/Revenue 2026FY and 3.88x TEV/Revenue 2027 this looks cheap to me. The reason the sudden drop off in the multiple is the uncertainty of the future revenues. But I think the 2026 outlook for RCAT is very positive.

RCAT is trading at 19.51x EV/Sales (FWD) which is lower than UMAC which is trading at 23.60x but much larger than KTOS (9.3x), AVAV (7x) and TDY (4x). Although, this higher multiple is more than justified because of the infancy of RCAT and the current revenue growth rates. Q3 they reported revenue growth of 646% year over year and currently guiding to Q4 Revenue to 1455% year over year.

Red Cat recently launched a maritime division, Blue Ops, focused on delivering and further developing a family of battle proven uncrewed surface vessels (USV) weapons systems. The US Army’s SRR UAS Tranche 2 program, signed in July 2025 has been expanded and is now valued at $35 million. Blue Ops opened a 155,000 square foot facility in GA with manufacturing capacity of more that 500 vessels per year and a 2x expansion of manufacturing space in Salt Lace City for the (Teal) drone and LA (FlightWave) Facilities. The management sounds excited and position going into 2026: “Our record-breaking third quarter revenue and the expansion of our contract with the U.S. Army clearly demonstrates the accelerating adoption of our specialized solutions within the defense and national security sectors,” said Jeff Thompson, CEO of Red Cat.

Overall, 2026 appears poised to be a year of strong growth and substantial upside for RCAT. The market is currently applying a significant discount due to uncertainty, which in my view creates an attractive entry point at the current share price, especially given the recent sell-off.

Risks

Ukraine war seems to be coming to and end and this news is likely to hit the defense stocks worldwide as defence spend in the US and EU come under uncertainty. I think the defence spend will not be impacted with this news but the stock will have a short term pullback.

Execution risks remain present as defence is a difficult industry to make money in as you’re depended on government contract based on approvals granted and alot of sunk costs made into manufacturing facilities. RCAT management has proven to be very effective navigating these challenges effectively evidenced by “Black Widow” the small uncrewed aerial system (sUAS) approved and added to the NSPA catalogue and the DoD and homeland security agency contracts. This means NATO member nations (and eligible partners) will be able to procure Black Widow through standard procurement channels.

RCAT operates within a highly competitive drone and defense landscape dominated by established players such as AeroVironment, Skydio, Anduril, Teledyne, and several major NATO and United States defense contractors. These larger firms benefit from greater research and development budgets, stronger manufacturing infrastructure, and long standing relationships with the DoD and homeland security agencies. In this environment, RCAT’s smaller scale and shorter track record make it more difficult for the company to compete for large multiyear government contracts.

Catalysts

Major catalysts for RCAT would be a ban on Chinese made drones. Western governments are moving quickly to restrict or ban drones made in China, especially those produced by DJI. Under the 2025 National Defense Authorization Act, new imports of many Chinese drones will be blocked in the United States by December 2025 unless they pass a security review that has not begun. The US Commerce Department is also preparing new national security rules that would further limit Chinese drone imports. As these restrictions tighten, government and security agencies will need Western built alternatives. This creates a clear opportunity for companies like RCAT, since demand will naturally shift toward trusted suppliers that meet United States and NATO security standards.

The conversion of its announced government opportunities into firm, repeat orders, would act as a positive and confidence inspiring catalyst. A meaningful production contract under the Army’s Short Range Reconnaissance program would signal that the company has moved beyond prototypes and small awards into genuine DoD backed volume. Additional federal demand from border security, special operations units, or other agencies would reinforce that momentum.

Another catalyst is the first wave of actual purchases from NATO countries following the company’s recent inclusion in the NSPA procurement catalogue. One or two sizeable orders from European allies would validate the platform internationally and demonstrate that the NSPA listing is translating into revenue rather than remaining a theoretical channel.

Finally, any improvement in RCAT’s financial position, such as reduced cash burn, higher margins through scale, or evidence of stable recurring service revenue, would help reduce investor concerns about dilution and strengthen confidence in the long term outlook.

Conclusion

RCAT appears to offer a compelling investment setup supported by several structural tailwinds. Warfare is steadily shifting toward robotics and unmanned systems, and Western governments are increasingly restricting Chinese built technology while promoting domestic suppliers. RCAT is aligning itself with these trends by expanding into new areas such as its maritime division and by exiting consumer focused segments that distract management from higher value defense work. The recent selloff provides an attractive entry point at a moment when the company is sharpening its strategic focus and positioning itself for growth in a sector that is only becoming more important. Taken together, the industry tailwinds, the shift away from Chinese systems, RCAT’s streamlined strategy and the current valuation create a genuinely interesting opportunity for investors.

“That’s it! Thank you for reading! You can subscribe and like to support my research. Please reach out if you have any questions or if you want to chat about markets.“

Disclaimer: The content published here represents my personal opinions and is provided strictly for informational and educational purposes. Nothing on this Substack constitutes financial, investment, legal, or tax advice, nor should it be relied upon as such. I am not a licensed financial advisor, and I do not make recommendations to buy, sell, or hold any securities. The information presented may not be complete or accurate, and it may change without notice. Past performance is not indicative of future results. You are solely responsible for your own investment decisions, and you should always conduct your own research or seek advice from a qualified professional before making financial decisions. I may hold positions in securities mentioned, but I am under no obligation to update or disclose changes.

On July 22, 2025, as part of the US-Japan trade deal, Japan committed to invest $550 billion in the US. The purpose of creating this investment vehicle is to invest in the United States across multiple strategic sectors including semiconductors, critical minerals, pharmaceuticals, energy, shipbuilding, AI and quantum computing. As part of this trade deal, the US reduced tariffs from 25% to 15%, conditional on Japan’s investment. This means these investments are unlikely to be cancelled, especially after the recent Japanese PM Sanae Takaichi’s visit to the White House, which went well: “Trump heaps praise on Japan’s first female leader, signs rare earths deal“. On top of that, and more importantly, the previous 25% tariffs hit the Japanese export-dependent economy and sent shockwaves through the car-manufacturing and technology sectors.

Japanese firms such as SoftBank Group, Westinghouse and Toshiba have shown interest in launching projects under this fund, with investment sizes reach…

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I came across this company around four weeks ago when it was trading at $0.15 per share. Since that point, the stock rose about 50%. After a recent pullback, it’s now back trading at $0.16 per share. I believe there’s meaningful idiosyncratic and thematic upside in this name.

Executive Summary

Commerce Resources is a small Canadian exploration company developing the Ashram Rare Earth and Fluorspar Project in northern Québec. It’s one of the few large-scale rare earth deposits in North America with meaningful exposure to neodymium (Nd) and praseodymium (Pr) two key elements used in permanent magnets for EVs, wind turbines, and defense systems.

In October 2025, the company merged with Mont Royal Resources Ltd., creating a broader platform that now includes exposure to rare earths, niobium, fluorspar, and lithium. The combined entity is targeting a dual listing on the TSXV

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Summary

• Zeta Global is a high-growth AI-driven MarTech company, consistently beating revenue and margin targets with strong growth in customer LTV and accelerating performance.

• The company operates in a rapidly expanding market, supported by secular tailwinds and rising enterprise adoption, positioning Zeta for sustained long-term growth.

• Despite recent volatility and a short report controversy, Zeta trades at a 50% discount to fair value, offering significant upside potential for investors.

• Risks include regulatory changes, competition, and macroeconomic headwinds, but Zeta’s operational execution and interest in acquisition add to its investment appeal.

Utilizing its AI-powered proprietary marketing platform (ZMP), Zeta Global Holdings Corporation (NYSE:ZETA) achieves outstanding results for its clients. Founded in 2007, Zeta has managed to compete and grow in the increasingly fierce competitive world of MarT…

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France has long treated its politics as an experiment in constitutional design. Since the fall of the monarchy in 1792, the country has rewritten its governing framework fifteen times, more than any other major democracy. Each constitution emerged from crisis: the revolutionary assemblies of 1789, the authoritarian order of Napoleon, the fragile coalitions of the Third and Fourth Republics, and finally the centralized power of the Fifth. The French state has never stood still. It has swung between the search for stability and the fear of tyranny, between the promise of reform and the memory of collapse.

Today, the same question that faced de Gaulle in 1958 has returned. Can France still be governed under its current system? What began as a fringe idea, the creation of a Sixth Republic, is creeping into the mainstream debate. Political paralysis, a weakened presidency, and a sense of deep social fragmentation have eroded confidence in the ruling class. Increasingly, it feels as though t…

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TL;DR

Infleqtion is a US quantum hardware and software company commercialising neutral atom technology across computing and precision sensing. Its systems quantum clocks, RF receivers, and inertial sensors are already field-tested with NASA, the US Department of Defence, and the Royal Navy, while its computing platform has achieved record logical qubit performance and integration with NVIDIA’s CUDA-Q stack.

Through its merger with Churchill Capital Corp X (CCCX), Infleqtion will list publicly at a $1.8 billion pre-money valuation, raising $540 million to accelerate product deployment. The company generated $29 million LTM revenue with 80% CAGR, and has a $300 million pipeline, positioning it as rare commercial-ready firms able to monetise quantum capability today.

With global quantum investment exceeding $60 billion and China outspending the US nearly two-to-one Infleqtion sits at the intersection of national security, AI acceleration, and the next computing paradigm. While execution and adoption risks remain, the company offers asymmetric upside as a leveraged play on the quantum arms race and a potential multi-bagger.

Infleqtion

Infleqtion designs, builds, and sells quantum computers, quantum precision sensors, and quantum software to governments, corporations, and research institutions. Its mission is to commercialise quantum products that deliver orders-of-magnitude improvements in computing and precision sensing applications.

Product Suite and Use Cases

At the heart of all Infleqtion’s products lies its neutral atom core. This underlying engine powers a suite of offerings ranging from quantum computers and clocks to radio-frequency (RF) and inertial sensors each delivering significant performance improvements over classical systems.

Infleqtion’s hardware product suite can be broken down to two main segments:

• Quantum computing

• Quantum sensing

Quantum Sensing Segment

Atomic Clock

Infleqtion’s atomic clocks offer precision, accuracy, and stability that are 10–1000× greater than existing systems. They provide “better-than-GPS” timing for synchronisation without relying on satellite signals a critical advantage for infrastructure such as electricity grids, cellular networks, data centres, and financial markets, all of which depend on accurate timing. This addresses a major point of fragility in modern infrastructure.

Quantum RF Receiver

Quantum RF receivers completely rethink the paradigm of how we receive radio waves. Instead of using antennas, Infleqtion turns atoms into receivers, enabling all sorts of new use cases. Normally, the size of an antenna has to match the wavelength that you’re trying to receive that’s why rooftop antennas are bulky, and why submarines trail antennas that can extend up to 1 km (0.6 miles) in length just to maintain communication while submerged. With the quantum receiver, Infleqtion claims they can shrink both of these down to something the size of a sugar cube.

Inertial Sensor

This product can sense forces such as gravity and motion with remarkable precision. Infleqtion predicts that, in the future, this technology will enable the development of products capable of navigation without relying on GPS.

Quantum Computing Segment:

Quantum Computers

Infleqtion’s neutral atom quantum computers are engineered to deliver scalable, fault-tolerant performance, unlocking applications beyond the reach of classical systems. While traditional computers struggle with problems involving large, complex variable interactions, quantum architectures can process such challenges exponentially faster a leap particularly relevant to AI, chemistry, and materials science.

Sqale, Infleqtion’s flagship neutral atom quantum computer, is designed for precision, scalability, and speed, enabling high-fidelity quantum operations that push computational boundaries. The platform provides the foundation for scalable error correction and reliable quantum applications, positioning Infleqtion at the forefront of practical quantum computing.

Applications unlocked by Infleqtion’s quantum technology include:

• Artificial Intelligence: Extends AI model memory and context length, enhancing pattern recognition and performance.

• Drug Discovery: Accelerates molecular simulations, reducing R&D costs and time-to-market for safer therapies.

• Materials Science: Rapidly screens vast molecular datasets to identify and design new materials.

• Chemistry: Performs precise computational modelling of reaction rates and catalytic processes.

This will enable use cases that classical computers will never be able to accomplish.

Quantum Software Stack

Infleqtion uses this software stack on top of its hardware to control and interpret data, ultimately enabling the creation of new, useful products.

10,000-Foot View of Advancements in Computing

Quantum is a computing force multiplier. Classical systems are reaching their limits in terms of size, energy, and cost, and there are certain challenges that today’s technology simply cannot solve. Just as GPUs extended the power of CPUs and opened entirely new markets (such as AI), quantum processing units (QPUs) will layer on top of both CPUs and GPUs to tackle problems that classical computing cannot reach.

Take encryption as an example: modern encryption relies on the fact that classical computers cannot efficiently factor very large numbers into their prime components. Breaking RSA-2048 encryption, for instance, would take a CPU around six trillion years, and even a GPU about seventy-five billion years. A fully developed QPU, however, could complete the task in roughly a week.

That’s the kind of leap Infleqtion is suggesting an exponential step forward that unlocks vast new opportunities. Quantum computing represents the next paradigm in technology, extending and expanding the frontier beyond what classical systems can achieve.

Infleqtion’s History and Evolution

Infleqtion has been a pioneer in quantum technology since its early days, developing the world’s first quantum memory for NASA and launching the Cold Atom Lab aboard the International Space Station the first quantum system in space. The company’s growth accelerated after securing its first institutional investment from Maverick Capital in 2018, catalysing its expansion into quantum computing.

In 2023, Infleqtion sold its first quantum computer, followed by a double-digit million-dollar quantum clock order from the U.S. Department of Defence in 2024. That same year, it achieved two logical qubits on its quantum computer, later expanding to eight in 2025. This marked a transition from pure R&D to commercialisation, with growing traction across multiple sectors.

Infleqtion’s technology now underpins real-world deployments across computing, defence, and AI. Through collaborations with NVIDIA, J.P. Morgan, EPRI, and the U.S. Air Force, the company integrates quantum capabilities into GPUs enhancing efficiency and expanding AI context windows. It continues to deliver products to government clients such as the U.S. Army and partners with defence contractors like SAIC.

With its quantum hardware and software now in market, Infleqtion is scaling to building commercial systems that approach quantum advantage and positioning itself as a leader in both quantum computing and precision sensing.

Infleqtion’s Products in the Real World

Infleqtion has built quantum computers on three continents. The company has flown its quantum clock and sensors on aircraft, including a demonstration with the UK Minister for Science on board, highlighting applications in aerospace and national security. Infleqtion’s sensors will be trialled with the Royal Navy for future defence and navigation markets. In addition, the sensors are already operating on the International Space Station, with additional missions in development alongside NASA opening further opportunities in space exploration and next-generation communications.

Quantum Computing Arms Race

Global investment in quantum technology now exceeds $60 billion, led by China’s $15 billion and the U.S.’s $8 billion commitments. China’s plan to inject a further $140 billion into advanced fields underscores the scale of this race.

As Western nations increase funding to remain competitive, Infleqtion is well-positioned to benefit. With established contracts with NASA, the U.S. Air Force, and the Department of Defence, Infleqtion is one of the few commercial-ready quantum companies trusted by government agencies.

In a world where quantum capability is becoming a matter of national security, Infleqtion stands as a strategic U.S. asset poised to capture expanding federal and allied funding.

The merger

On 8 September 2025, CCCX and Infleqtion announced a business combination agreement valuing Infleqtion at approximately $1.8 billion (pre-money). The deal is expected to provide more than $540 million in gross proceeds to Infleqtion. This comprises funds in CCCX’s trust account of around $416 million and additional PIPE financing of over $125 million from institutional investors. Upon closing, the combined company will operate as Infleqtion and is expected to be listed on a leading North American exchange under the ticker “INFQ.”

CCCX Valuation

As CCCX has not yet merged with Infleqtion, valuing this SPAC precisely is difficult. Its market capitalisation stands at roughly $984 million, with a liquidation value of around $540 million the remainder largely reflecting deal-premium speculation. CCCX currently has 52.05 million total dilutive shares outstanding, trading at $18.86 (as of 7 October 2025).

Realistically, valuation analysis on this SPAC merger is not especially productive beyond recognising the premium currently priced in approximately $450 million, or about 50 per cent of the current CCCX share price.

Peer Comps

Let’s take a look at Infleqtion’s peers:

(NYSE: IONQ)

(NYSE: QBTS)

(NASDAQCM: RGTI)

(NASDAQCM: QUBT)

Infleqtion Valuation

Public comps: EV/Sales on LTM and 2025E

Inputs from the deck

• LTM revenue (to 30-Jun-2025): $29m.

• “2025E booked + awarded” (not GAAP revenue): ~$50m (we use this as a forward proxy).

• Peer “current value” markers (IonQ, D-Wave, Rigetti, QCI) used in the deck’s peer chart (market data as of 5-Sep-2025).

• Pre-money equity value guidepost: $1.8B.

Scenario A: Using peer median multiple (ex-QCI)

Peer EV/Sales (LTM) median ≈ ~210× (IonQ 267×; D-Wave 203×; Rigetti 159×).

• EV (LTM): 210× × $29m = $6.09B —> $24.7/sh (÷ 246.7m).

• EV (2025E proxy): 210× × $50m = $10.5B —> $42.6/sh.

Takeaway: a peer-median re-rate on LTM alone centre’s ~$25/sh; on the 2025E proxy, ~$43/sh.

Four Key risks

Commercialization and Adoption Risk
Infleqtion operates in an emerging, unproven quantum market. While technical milestones have been achieved, large-scale commercial adoption across computing and sensing remains uncertain. Revenue today is largely government-driven, with limited visibility into recurring enterprise demand.

Technology Execution Risk
The company’s valuation assumes continued advancement in neutral-atom quantum systems toward fault-tolerant computing and scalable production. Any delay in achieving higher logical qubit counts or maintaining leading fidelity could erode its competitive edge and postpone commercialisation.

Dependence on Government Contracts and Funding
A substantial share of Infleqtion’s revenue and growth pipeline relies on U.S. government and defence customers. Reductions or delays in federal R&D or defence budgets would materially impact near-term cash flow and backlog conversion.

Competitive and Modality Risk
Quantum computing is intensely competitive, with well-capitalized players (Google, IBM, IonQ, D-Wave) pursuing alternative modalities such as superconducting and trapped ions. A technological breakthrough in any competing approach could diminish the commercial relevance of Infleqtion’s neutral-atom platform.

Summary

In summary, this is a speculative investment but that doesn’t make it a poor one. On the contrary, I like this stock precisely for that reason, and I already hold shares of CCCX. Churchill Capital Corp has a proven record of successful de-SPAC transactions, most notably with Oklo, and Infleqtion represents its first dedicated quantum technology venture.

Infleqtion has secured contracts with multiple government agencies, including NASA and the U.S. Department of Defence, positioning it at the centre of the emerging quantum computing arms race. As the U.S. and its allies accelerate investments in national quantum capabilities, Infleqtion stands to benefit from substantial tailwinds.

The company has shown strong execution discipline, focusing on commercialisation rather than pure research reflected in its 80% LTM revenue CAGR. This demonstrates clear traction in monetising its technology through real-world deployments.

Looking ahead, I expect continued earnings growth, expanding contract wins, and rising investor optimism to drive a re-rating in valuation multiples. In my view, Infleqtion is a compelling speculative buy with multi-bagger potential over the next 12 months, supported by fundamental progress and increasing market enthusiasm for the quantum computing sector.

Monday

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TL;DR

The U.S. government shutdown is likely to hurt Republicans more than Democrats, with President Trump taking much of the blame. To resolve the stalemate, Republicans will likely need to concede on healthcare, a central Democratic priority. This would directly benefit the healthcare industry, particularly Oscar Health (OSCR), whose revenues are heavily dependent on ACA subsidies. The stock already trades at a discount because the market assumes subsidy expiration is inevitable. That downside is priced in, but if Democrats secure a healthcare win, Oscar Health could be repriced significantly higher.

Current Shutdown Details

Congress has repeatedly failed to pass a funding package, leaving the government closed and tens of thousands of workers furloughed. Both parties are pointing fingers: Republicans accuse Democrats of tying healthcare to budget talks, while Democrats argue that healthcare cannot wait, pa…

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Executive Summary

Investment Thesis

• Cyclical Recovery: Winnebago (WGO) is a premium RV manufacturer operating at depressed earnings due to slowing consumer demand due to high interest rates. Normalization of financing costs should drive a strong rebound.

• Operational Leverage: WGO has expanded margins historically and demonstrated >30% incremental margins even in a weak demand environment, positioning it to outperform in recovery.

• Diversification & Growth: Acquisitions in marine (Barletta, Chris-Craft) provide diversification beyond RVs and long-term growth optionality.

Valuation

• Base Case (FY2026E): $52/share (+53%).

• Bull Case: $120/share (+260%).

• Bear Case: $34/share (flat).

• Current valuation (~7.5x normalized EV/EBITDA) sits near the low end of its historical range and at a discount to peers on EV/Sales.

Catalysts

• Federal Reserve rate cuts improving RV affordability.

• Operational Leverage & Incremental Margins

• Marine segment expansion and incremental margin recovery.

Recommendation

BUY: WGO offers attractive asymmetric upside leverage to a U.S. consumer recovery, with a favourable risk/reward profile.

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Company Overview and Industry Context

Winnebago Industries (NYSE: WGO) is a U.S.-based manufacturer of recreational vehicles and marine products headquartered in Eden Prairie, Minnesota. Its core brands include Grand Design RV, Newmar, Barletta, Chris-Craft, and ATG. WGO distributes through a network of 400+ dealers across North America, with a limited European presence. The company employs ~5,700 people and has been led by CEO Michael Happe since 2016.

Core Business Segments

Revenues are primarily generated through three categories: Towable RVs, Motorhome RVs, and Marine. Towables include Fifth Wheel and Travel Trailers, while Motorhomes comprise Class A, B, and C vehicles.

Over the last 10 years here is the breakdown of each segment as a percentage of Net Revenue and Adjusted EBITDA.

Towables further break down to the following segments:

1. Fifth Wheel

2. Travel Trailer

Motorhomes further break down to the following segments:

1. Class A

2. Class B

3. Class C

Market Positioning

There are three key manufacturers in the United States in the RV industry. Thor Industries, Forest River and Winnebago Industries. Thor is the largest player with the largest earnings and most scale. Forest River is the second largest, focused mainly on entry-level and affordable RVs; it is owned by Berkshire Hathaway. Winnebago is the third largest player with around 12% market share and focuses on premium and mid-market RVs and towables.

Is This a Good Business?

CAGR of Revenues and EBITDA

From 2015 to 2024 WGO achieved a 13% CAGR. Low teens is a good, not amazing but good, especially for the industry that has a CAGR of 5%. At the same time WGO went from around 3-12% market share by both acquisitions and organic growth.

Interest Rate Sensitivity

The drawback of WGO is the high degree of economic sensitivity. In the 2008 financial crisis WGO revenues declined 30% and 65% consecutively. In 2023, as high interest rates started putting pressure on the US economy revenues declined 30% and 15% in 2024.

The current interest rates are putting immense pressure on the WGO bottom line by depressing demand. WGO also has a high financing sensitivity. 70-80% of RVs are financed so high interest rates kill demand. WGO ASP for motorhomes is $190,000, at 4% interest financing rate monthly payments are $1,924 and with 8% interest rate interest paid doubles and monthly payments go up 20% to $2,305.

Profit Margins

Net income has been growing and experienced a meteoric rise in FY 2021 and 2022. Net income margins hover in the mid-single digits but in 2024 they came in at 3.4%.

EBITDA margins are in high single digits, although in 2021 and 2022 EBITDA margins were in low double digits. In 2024, EBITDA margins have fallen all the way down to 6.2%.

Summary on WGO (is this a good business)

Overall, WGO is a good business. The business has been growing its revenues, improving margins, increasing market share both organically and through acquisitions. In 2021 and 2022 margins, profits and ROIC were spectacular but that is unlikely to repeat themselves in a sustainable way. The downside on WGO is that it is highly cyclical and economically sensitive.

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How Does the Business Make Money?

First thing to remember is that WGO is a manufacturer, not a dealer. When dealer places an order, it goes into the WGO’s backlog. Sale to dealer in made on cash terms, but with a repurchase agreement if the unit cannot be sold. The revenue is recognised when unit is delivered to the dealer.

This means that the backlog matters, dealer inventory levels matter. As you can observe from the photo below the last time WGO stock hit ATH was when dealer inventory levels and day sales inventory were at the lowest point in the last 10 years indicating strong demand from consumers and thus dealers. This pushes up orders from the dealers thus backlog and days sales backlog and ASP, which grew margins.

Unfortunately, after 2024 WGO has stopped reporting these figures in their filings, but I can present the latest data available QoQ:

Backlog units have been falling as dealers overbought in 2020–2021 during the boom and are still working through stock. On top of that there is no need for dealer to put it large orders as demand is weak. Although, the inventory units have since stabilised and are not really changing; they’re hovering around 4,000 units.

Let’s look at unit economics

The following is calculated by dividing total revenue by total unit deliveries. It is useful to know but it’s quite blunt.

As you can see each year, over the last 10 years WGO has generated 95% total revenue in the United States. There is no trend to follow and no reason to believe international revenues will grow as a percentage.

Most profitable segment

Historically, towables and motorhomes have driven 85-95% of total net revenues. This percentage has fallen to 85% in the last FY ‘24 as marine and other revenues rise. But main value creation is done though these two segments.

Diving deeper into the towables, net revenues are distributed 50%-46% for Fifth Wheel net revenues and Travel Trailer Net revenues, remaining 4% is from other net revenues. With net revenues from the motorhome sales, historically Class A has contributed the most followed by Class B and then Class C.

To conclude the most profitable segments historically from the towable side is Fifth Wheel and from the motorhome side its Class A. These segments really drive large percent of the net revenues. For the past 7 years on average these two segments combined have accounted for 45% of total net revenues.

So, what drives the business?

1. Backlogs matter. Dealer inventories level matters.

2. Tight backlogs and low inventories drive high pricing. High pricing drives high gross margins.

3. High gross margins drive high earnings and FCF.

Key drivers:

1. Unit demand: Driven by customer demand, which is driver by the economy.

2. Unit pricing: Driven by backlog, unit demand and competition (or lack of it)

3. Margins: Driven by unit pricing, which is driven by unit demand and customer demand.

Momentum and Cost Structure

Evolution of operating cost structure of Winnebago over the last 10 years.

WGO’s operating expenses as a percentage of sales increased from mid-single digits to ~10.2% in FY2024. The momentum has been very poor over the last 10 years. Operating profit margin varies between mid-to-high single digits. Although, in 2024 WGO has produced the lowest operating profit margin for the last 10 years. So, momentum on those two metrics is poor, and it is expected to be, the stock price reflects the current struggles. The metric that I am impressed with is incremental margin. In 2023 and 2024, incremental operating profit margins have been 21.4% and 33.9% respectively. This signals operational efficiency improvements which are very impressive. FY 2024’s 4.5% operating profit margin can be attributed to higher overhead costs and the slump in sales due to the economy. This margin should expand at least to 7% (historical) as orders pick back up. This makes me believe that WGO is well positioned to benefit greatly from the next pickup in sales, with expanded margins.

ASPs for Towables

There is a clear difference between the towable ASPs and the motorhome ASPs. As towable ASPs have fallen over the last couple years, the RV prices have been more resilient, and in the case of Class B ASP growing 6.4% YoY. Clearly, WGO has more pricing power in motorhomes than in towables.

ASPs for Motorhomes

Some History

During the Covid-19 from 2020 into 2022 the stock price tripled from $25 to over $75. This was driven by people having the freedom to work from home and choosing to buy RVs, travel and work from there. This trend was a huge tailwind for the RV industry and trickled down to WGO income state and balance sheet with unprecedented profits and huge backlog of orders from dealers.

Post-Pandemic Slowdown

The music stopped when COVID restrictions eased and employers called workers back, the pandemic pull-forward unwound. Rising Fed funds rates pushed up financing costs, depressing consumer demand and driving a sharp decline in WGO’s earnings and industry profits.

Recent Headwinds

While there are signals of recovery, recent headwinds have really beaten the Winnebago stock down. The main issue is that the RV industry is depended on the good performance of the US Economy, especially since Winnebago focuses of more premium and mid-market segment. The struggles of the US economy and the high Fed rates have depressed demand for RVs.

As we can observe, from the chart above as the interest rate peaked and inflation came down WGO stock started to collapse.

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Valuation

WGO trades at a discount to peers on EV/Sales and EV/EBITDA, but at a premium on P/E because near-term earnings are depressed. This reflects cyclical trough conditions investors are looking through the current earnings compression

Currently there is a price divergence between THO and WGO which presents an opportunity for a mean reversion.

Valuation historical Context

Valuation metrics while not at the bottom are sitting in attractive ranges. Over the past 10 years, WGO has historically traded in the range of 6–12x forward EBITDA and 10–18x forward earnings. Today’s implied EV/EBITDA (~7.5x on normalized FY2026E EBITDA) sits at the low end of its historical band, while the high P/E reflects trough EPS rather than structural overvaluation.

52-week range: $28.00–$65.65; shares currently at $33.51, an attractive historical level.

Risks to the Turnaround

Economic Sensitivity

RVs are highly discretionary purchases. A prolonged U.S. economic slowdown, higher unemployment, or weaker consumer confidence could delay recovery and depress unit demand.

Interest Rate Risk

If inflation remains sticky and rates stay elevated longer than expected, affordability constraints would continue to suppress sales. Every 100 bps increase in rates raises monthly RV financing costs ~10%.

Competitive Pressure

Thor Industries and Forest River (Berkshire Hathaway) possess greater scale. Aggressive discounting from larger peers, especially in towables, could cap pricing power and pressure margins.

Consumer Behaviour Shifts

The COVID boom created a temporary pull-forward of RV demand. If structural consumer appetite for RV ownership is lower post-pandemic, the industry’s long-term growth rate may reset downward.

Investment Recommendation

Base Case (FY2026E)

• Revenues recover to ~$2.93B (mid-cycle).

• EBITDA margin expands back to ~9% (from 6.2% in FY2024).

• EBITDA = ~$264M.

• Apply 8.0x EV/EBITDA (historical mid-point).

• TEV = ~$2.1B.

• Subtract net debt (~$600M) → Equity = ~$1.5B.

• Implied price = $52/share (+53%).

Bull Case

• Faster demand recovery, revenues $4.5B, EBITDA margin 10%.

• EBITDA = $450M. Apply 9.0x multiple.

• TEV = ~$4.1B → Equity = ~$3.5B.

• Implied price = $120/share (+260%).

Bear Case

• Prolonged weak cycle, revenues flat at $3.2B, EBITDA margin 7%.

• EBITDA = $225M. Apply 7.0x multiple.

• TEV = ~$1.6B → Equity = ~$1.0B.

• Implied price = $34/share (flat).

Catalysts

Federal Reserve Rate Cuts

With 70–80% of RVs financed, affordability is highly sensitive to interest rates. A 100 bps cut could lower monthly payments on a $190K motorhome by ~10%, materially improving demand. Any clear Fed guidance on a cutting cycle would be a direct positive catalyst for WGO.

Marine Segment Expansion

The Barletta and Chris-Craft brands give WGO exposure to the marine market, which is less saturated and offers long-term growth optionality. Continued growth here diversifies earnings away from RV cyclicality.

Operational Leverage & Incremental Margins

WGO demonstrated >30% incremental margins even in a weak demand environment. As volumes recover, operating leverage should magnify earnings power, driving a faster rebound in profitability than revenues alone suggest.

Conclusion

Winnebago (WGO) is a high-quality cyclical business that has expanded market share and improved operational efficiency over the last decade. Today, the company faces cyclical headwinds from high interest rates and elevated dealer inventories, which have compressed earnings and left the stock optically expensive on near-term P/E. However, on normalized mid-cycle metrics WGO trades near the low end of its historical EV/EBITDA range and at a discount to peers on EV/Sales, offering an attractive entry point.

Catalysts for re-rating include Fed rate cuts improving RV affordability, dealer inventory normalization, and incremental margin recovery, while risks remain around macro weakness, consumer demand, and competition. Scenario analysis points to a base-case fair value of $52/share (~53% upside) with a favourable skewed risk/reward.

Recommendation: BUY: WGO offers compelling upside leverage to a cyclical recovery in U.S. discretionary spending.

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