Tuesday, December 14, 2021

A Small Cap Equity holding: Mitek Systems, Inc. (MITK, $17.27): “Keep An Eye On Mitek” By: Owen Filbin, AIM Student at Marquette University

 Mitek Systems, Inc. (MITK, $17.27): “Keep An Eye On Mitek”

By: Owen Filbin, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Mitek Systems, Inc.  (NYSE: MITK) is a global-leading software company that specializes in providing mobile facial identification and image capturing solutions. Mitek Systems’ products and solutions reach nearly 7,500 financial organizations (banks, fintech companies, lenders, card issuers, etc.) to enhance the mobile customer experience and ensure compliant digital transactions.

• Mitek’s main product line includes Mobile Deposit, Mobile Verify, and CheckReader, all of which focus on digital banking processes.

• Mitek Systems reported net revenues of ~$101 million in FY20, up about 20% since FY19. Mitek segments their revenue into ‘Software and Hardware’ and ‘Services and Other,’ representing about 53% and 47% of net revenues, respectively.

• All of the top 10 major U.S. retail banks, and nearly all of the top 50 U.S. retail banks utilize Mitek’s technology and products.

• In 2018, Mitek completed their acquisition of A2iA, a software company dedicated to extracting customer data and documents. Some of the products spun off from this acquisition include: A2iA CheckReader, A2iA XE, A2iA DocumentReader, and A2iA TextReader. This acquisition increased their global footprint by placing two of the leaders in digital recognition technologies under the same house.

Key points: With an increased push for online banking and going digital, Mitek Systems has experienced growth through their Mobile Deposit, Mobile Verify, and CheckReader products. Over the past couple years, Mitek has been able to capitalize on this push with their software and hardware line. This line totaled $60.1 million for FY21, growing 16%. Their SaaS revenue represented $40.2 million of their total revenue, up 37%.

During Mitek’s 4Q21 earnings call, it was heavily stressed that management is making significant R+D investments into their fraud product offering, as well as their AI advancements. This is represented in their acquisition of ID R&D, adding AI-based voice technology, as well as biometric facial detection. On top of this, the acquisition of  ID R&D also led Mitek to branch off into the customer onboarding market, utilizing the new technologies in this acquisition to streamline this process.

Mitek’s main competitor is Top Image Systems Ltd., a leader in Enterprise Content Management (ECM). They also compete more directly with IDNow, an identity verification platform. Mitek Systems houses multiple product segments under the same umbrella, something I see lacking in other competitors that offer similar solutions. This bodes well for Mitek going forward as the go-to shop for banks and other financial institutions. As previously mentioned, they have been able to attract the attention of major U.S. banks, and I intend this number will grow throughout FY22 and on.

What has the stock done lately?

Mitek is currently trading right in the middle of their 52 week H-L, representing a 10.33% decrease since its addition to the Small Cap Portfolio. MITK currently holds a P/E multiple of 97.4x, an EV/EBITDA multiple of 17.6x, and an ROE of 5.2%. FY 20 was a huge year for MITK, and has already shown signs in FY21 that point towards this trend continuing.

Past Year Performance: Mitek’s 52 Week Range is $11.27-23.29 and was added to the Small Cap Portfolio at a price of $19.26. MITK increased 132.40% FY19 to FY20, outperforming the industry and market benchmark. MITK’s EBITDA nearly doubled, and record record level sales. MITK did not pay a dividend in FY 20, and that still currently remains true.

Source: FactSet

My Takeaway

It is becoming quite clear that institutions are putting their trust in Mitek Systems to deliver marketing-leading fraud detection and digital identity recognition services to streamline their processes. Mitek has carved out a significant amount of the market as noted previously, and captured the attention of major U.S. banks and financial organizations. I do not think Mitek’s current short-term price fluctuation should raise any red flags. Due to MITK’s ability to capture market share through their facial recognition and fraudulent proofing mechanisms, sizeable YoY growth, and future ramped up demand, I expect MITK to grow to analyst target price of $25.75.

Source: FactSet