Description

JAMF is the largest mobile device management (MDM) company for the Apple ecosystem. They help businesses, schools, and government branches with managing and securing Apple devices at work. As the industry standard, they have over 71,000 customers, including Apple as a customer, and are enjoying several tailwinds as Apple in enterprise continues to gain market share and the need for an apple native enterprise solution becomes more evident.

Vista equity has been a majority investor since 2017, and continues to be a majority holder (~47%) nearly 3 years after its IPO. We think Vista Equity’s involvement here validates Jamf’s market position and ensures a level of execution and capital allocation. We also think the chance of a takeout offer, specifically from Apple, could be possible in the mid to long-term, and Vista’s ownership should provide a safety net that shareholder interests should be protected in the event of any interest from buyers.

They are a relatively small (2.6B mkt cap) stock that is underfollowed in the buy-side community. The company already has a strong level of profitability with unlevered free cash flow margins at ~20% for the past 3 years, and we think they can grow topline 20%+ and with ample margin expansion left, which makes today’s sub 5x revenue multiple and 4% FCF yield look very reasonable.

Business Summary

JAMF’s singular focus on Apple products means it’s important to understand the state of Apple in the enterprise tech market. Apple has come a long way since Steve Jobs publicly said that he hated the enterprise market. What used to be a Windows dominant world 10 years ago, Apple is now the most used OS company in the U.S,  and is also gaining share in the enterprise market. Per IDC, during 2019-2022, Mac has seen a 60% increase in shipped volumes while the PCs only grew 6% during that time, resulting in Macs now accounting for 10.8% of all global PC shipments and 17% in the U.S. 

While Windows PC shipment volumes declining 18% last year, Mac actually grew 2% for the year (source). This is all before considering Apple’s dominant position in smartphones, tablets, and wearable markets, which are all becoming a bigger part of the enterprise as employees push to use their personal devices at work. JAMF forecasts that Apple will become the number one device ecosystem in the enterprise by the end of this decade, and recent trends so far all indicate continued market share gains for the Apple ecosystem. 

In a 2021 survey conducted by Vanson Bourne (commissioned by JAMF), 89% of workers were willing to make a salary sacrifice for device choice and nearly two-thirds would choose Apple. A more recent real life example by Cisco shows that 59% of new hires and 65% of employees eligible for a refresh of their laptop are choosing Macs over PCs (source). There is even a study by Forrester that shows that an M1 Mac in the enterprise results in cost savings ($843 per device), 20% improvement in employee retention, and a 5% increase in productivity (source). The takeaway is that more and more employees are demanding a full Apple experience at work, and there is little excuse companies have to not provide support and management solutions for Apple devices, and JAMF provides the most comprehensive and easy to deploy platform in the market.  

JAMF, since its founding in 2002, has focused exclusively on the Apple ecosystem. This focus allowed them to develop a device management platform that could maximize the inherent strengths of the Apple, which is something hard to replicate for the rest of the windows-first solutions. Due to Apple’s less compatible ecosystem, any other windows-first solution often severely limits the user experience on an Apple device. Jamf’s SaaS solution is designed bottom-up with Apple in mind to ensure a full native Apple experience while providing the central management and security features enterprises need. JAMF at this point enjoys being the largest player with over 71,000 customers, giving them scale advantages. For example,  JAMF nation is the largest online community of Apple IT administrators in the world, and it boasts over 100k+ IT professionals as members, giving the company a competitive advantage as no other competitor has a community this large that can help answer questions from such a diverse body of users.

Jamf is the industry leader and their leadership has not really been challenged meaningfully for a while. VMware has historically been their largest competitor, but as Broadcom waits for approval for its acquisition of VMware, Jamf management has said they are expecting “the largest replacement market that Jamf’s ever been faced with”. At today’s scale and integration with channel partners, no competitor is meaningfully challenging Jamf yet. The data point that is most encouraging to us is that Apple has been Jamf’s customer since 2010 for its in-house device management solution, despite having its own in-house solution. 

• (“What we tell customers is actually the same thing that Microsoft tells customers: All you need is Microsoft and Jamf because Microsoft takes care of everything non-Apple and Jamf takes care of everything Apple because Apple requires a very specific, differentiated focus.”)

The biggest point of concern on the stock revolves around Jamf’s relationship with the mothership - Apple. Apple has been Jamf’s customer since 2010, and Jamf has been Apple’s education channel partner since 2011, retail channel partner since 2012, and mobility partner program since 2014. Apple is a significant reseller of Jamf products, particularly in education, and Apple is a frequent presenter at Jamf’s annual user conference, JNUC. 

Apple has always had a slimmed down version of a device management solution, but it was mostly for smaller businesses and does not realistically compete with Jamf for enterprise customers. In 2020, Apple announced that it would be acquiring Fleetsmith for an undisclosed fee, a mobile device management company that seemed to be a direct competitor to Jamf. Whatever rationale behind their decision to acquire fleetsmith, we think Apple was mostly trying to improve their Business Essentials solution, aimed at SMB business that are often too small for Jamf to target. And just two years after buying Fleetsmith, last year they announced that they will be discontinuing Fleetsmith services. The likelihood of Apple directly competing with Jamf seems highly unlikely and investor concerns around this issue seems overblown. Admittedly, this could also mean that Apple may never actually be interested in buying out Jamf no matter how big the opportunity gets. Compared to Apple, this is a very small space. 

At less than 500M in revenue last year, there is plenty of room for the business to be several times larger in the long term. As of 4q 2022 they served ~30 million devices, and the market they are targeting includes ~150M Education devices and 575M commercial devices. Jamf and Frost & Sullivan estimates have estimated TAM to be near ~$35B. Just thinking about macs,at a $50-$100 ASP (Jamf pro $44 is a year, and the most popular all-in-one business plan is $163 per year) per Mac device times the ~35m installed base of commercial macs, that alone is a $1.7b - $3.5B opportunity. And the overall market is still growing, growing at low teens per management, due to the consumerization of IT resulting in Mac share gains, the remote work/learn tailwind, and the security needs that come from more Apple devices in the enterprise. Certain verticals, such as education and telehealth are also seeing several regulatory and consumer demand tailwinds. 

The Pandemic was a big boost to the business. The release of the M1 equipped Macs in late 2020 was also an important catalyst that supercharged demand for Macs. And though some of the demand may have been pulled forward, we think 25% topline growth normalized is still very much possible going forward.

The company was enjoying ~40% ARR growth until 2H 2022 when macro concerns and lower PC shipments resulted in ARR growing YoY at 24% as of q4 2022. Bears would highlight the deceleration of device count growth, now down to ~15% after growing over 30% during most of its Post-IPO quarters. But both Mac and Ipad volumes were still positive despite negative PC and Tablet shipment volumes in 2022 (Macs grew 2% while PCs declined 17%, and Ipads grew 7% while tablet industry declined 3%), which further proves Apple’s momentum in enterprise. And though shipment volumes remain an important driver, it is not the only growth driver for the company, as they’ve focused on adding important customer features such as security, which has crossed $100M in ARR in 2022 and grew ~50%. 

So the cross-selling execution is starting to show up in the numbers. Revenue growth was maintained at 26% for q4 despite a midteens device count growth, due to a positive offset from ASP growth ( ARR per device was over $17 in q4 2022, up 20% YoY). 2023 is another year of a lot of uncertainties, but JAMF’s outlook is still expecting 17-18% YoY topline growth which given the macro back-drop is acceptable, and it likely accelerates back up to the 20s next year. Recurring revenue has also gone from ~77% of total revenues in 2018 to now close to 97% so the quality of revenue has also improved meaningfully. 

Valuation

Valuing SaaS today is perhaps trickier than in years past.  In JAMF’s case, we’d argue that a 4% FCF yield is certainly reasonable for the ~20% expected growth over a longer period, and perhaps too high given the predictability.  A 3% FCF yield is probably a better number but when FCF yields are so low that’s hard to argue. 

We see more upside potential on EV/ Revenue framing.  Consider the chart below, which shows software EV / Fwd Revenue multiples, with the stocks grouped by Rule of 40.

A few observations:

• 86% of these stocks have FCF yields under 5%. We’re highlighting the minority that are deemed risky or cyclical enough to get a FCF yield over 6%

• FCF margin over 20% earns 4x revenue or more today in almost all cases

• a GARP 10% + 10% gets a full valuation on FCF (sub-5% yield) , with whatever EV/Revs that implies

• Growth >20% gets an EV/Rev over 4x in almost all cases

JAMF’s Rule of 40 (growth + UFCF margin) has been 40-50% through 2022, and during 2023 it should put up 35-38%.  This speaks to JAMF’s strong unit economics, market opportunity, competitive position, and overall quality.  This company belongs in the red group, or the blue group conservatively.  EV/ Revenue is 4.7x, well below the average for the blue and red groups.  

Vista has been in this for 5 years and we doubt they’ll sit idle with the valuation here.  They announced in January they’re exploring bids for CVT, and we recently saw SAP do the same with XM.  Buyers still want these assets north of 6x revenue, we think for good reason.  If we get paid ~24% per year from the FCF and growth that JAMF produces, then multiple expansion to 6x or 7x or 8x revenue could add another 30% or 50% or 75% return via multiple expansion.  Maybe 8x revs is too rosy for this business, but there’s lots of evidence that true Rule of 40 software companies can be worth that much.

Catalyst

reaccleration in 2024 or potential sale process run by Vista