Our $19 price target is based on ~7x EV/S on our CY28E revenue. This compares to AVPT’s 1-year EV/S NTM median of ~7x, and implies ~25x EV/FCF on our CY28E FCF, which compares to AVPT's 1-year median of ~34x EV/FCF NTM. We believe this is justified given mixed financial optics – with an encouraging SaaS-driven increasing recurring revenue mix countered by relatively low margins against a distant 25-30% long-term target – and our observations around uncompelling DBNRR profile compared to cyber peers. AVPT’s brief history as a public company and MSFT reliance are also contributing factors.

Our High Risk designation is anchored to a limited public company tenure, and short/volatile trading history.

Upside risks to our price target: 1) Investments towards multi-cloud opportunities make headway and support expansion as customers use more AVPT SKUs for more workloads. 2) Strong MSFT user growth continues to expand AVPT’s addressable market creating more opportunity to capitalize on. 3) Data security increases as an organizational priority given the current high threat, increasingly regulated environment, and increasing urgency for AVPT’s data protection/compliance suite. 4) Reported ARR growth recovers to 25%+ YoY levels and NRR sees an upward inflection.

Downside risks to our price target: 1) MSFT/other CSPs innovate in data protection and compliance, and begin to serve use cases that replace the need for some AVPT product. 2) Macro-related spend pressure on customers/prospective customers leads to further de-prioritization of data security and a slowdown in migration projects. 3) NRR remains stagnant at current ~110% level. 4) Cost pressures hinder margin improvement, making it harder/drawing out the timeline for AVPT to reach margin targets.