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From the beginning of GreenDot, SaaS business-to-business ("B2B") software offerings have been a staple in the kind of businesses we like to invest in.

And why not? Many of them carry the characteristics to qualify as "green dot" stocks. Growth potential is substantial as these companies play a key role in the "digital transformation" of pretty much all industries. Recurring revenue is a hallmark of the SaaS model, ensuring repeating payments from customers for indefinite amounts of time. On the economic moat side, switching costs are meaningful as they provide the "bedrock" for operations, making them costly and risky to transition away from. Finally, being a software-based model, capital costs are low and scale well, leading to cash-flush business models.

In general, these companies have done well for us. ServiceNow (NOW) is up over 130% since recommendation. Toast (TOST) almost 100%. Nayax (NYAX) over 64% in less than a year. And so on...

Today I want to highlight another one of these that could be attractive: Alkami Technologies (ALKT). Let's take a look.

What Alkami Does

In a sentence, Alkami produces "white-label" websites and mobile apps for U.S. regional/community banks and credit unions. These offerings are cloud-based and handle all the nuts-and-bolts of a banking operation: balances, transactions, money transfers, account creation, fraud alerts, bill payments, regulatory compliance, etc. It allows these small banks to offer an enterprise-grade online banking experience without needing to pay for custom software development or IT infrastructure.

For those familiar, you can think of it as kind of a "Shopify for banks", providing a full platform that can be branded and customized but already has all of the necessary technology for basic operations.

At the end of Q2, Alkami boasted about 21 million digital banking users across just under 300 banks.

Revenue Recurrence and Growth Potential

Revenue recurrence is not in question. This is a SaaS model that bank customers pay for on a regular (annual or monthly) basis, usually based on the number of customers serviced. 95% of sales are considered recurring.

Growth also looks very strong. The company's 3-year compound annual revenue growth rate is close to 30%, and in its most recent quarter reported 36% year-over-year growth. There are over 250 million small-medium banking clients in the U.S., over 10x Alkami's current user base. Management estimates its total addressable market at over $14 billion, vs. a current revenue run rate of about $400 million. I see many years of substantial growth ahead.

Is There A Moat?

One reason I like B2B SaaS is that nearly all of these firms have some semblance of switching costs attached to them. For Alkami, I believe the switching costs are higher-than-average. Committing to this platform means putting your customer-facing banking operations in their hands, a critical touch point. Trying to switch to a competitor would be very disruptive (and potentially risky) for both internal operations and client experience.

This "stickiness" is reflected in the net revenue retention and churn numbers. Net retention has routinely come in at over 115%, showing that not only does Alkami not lose customers, it tends to increase business with them year-to-year. Annual recurring revenue churn is below 1%. Both of these reinforce the point - once a customer onboards with Alkami, they tend to stay and grow with them.

That's not to say there isn't competition for new business. Q2 Holdings (QTWO ) is a direct competitor that does largely the same thing, and is quite a bit larger (3x revenue and 2x market cap of Alkami). Smaller competitors like Lumia Digital and Nymbus are also out there. Winning new business is competitive, but keeping existing business is less so.

Management and Finances

The CEO is Alex Shootman, who ascended to the role in 2021. Stephen Bohanon is the founder and still holds an executive position as Chief Strategy Officer. Total insider ownership is just over 5%, which is on the low side, and neither Shootman or Bohanon hold particularly large stakes in the firm.

Alkami's financials paint the company pretty much as it is - an early stage but growing SaaS operation. Gross margins have steadily improved from about 53% in 2020 to 59% in 2024 - I expect these to eventually climb into the mid-to-high 60% range at least. The balance sheet was pristine right up until the recent purchase of MANTL, which put over $330 million in debt on it (vs. $90 million in cash). Free cash flows have been negative for most of the firm's history, turning positive for the first time in 2024. To date in 2025, free cash flow is still a challenge, coming in just barely positive. This should improve as scale increases.

Speaking of MANTL, it really marks the first big acquisition for the company. MANTL is a premier solution for online onboarding and account opening, a notoriously difficult area that smaller banks lag behind in. Many smaller banks still require you to visit a branch to open an account. So, to me it looks like a good strategic buy that could pay off nicely over the longer term.

Risks

The biggest risk here is that Alkami never manages to scale to a point where its business model achieves SaaS-level cash profitability. If it can't do that, it is unlikely to be worth the value we're going to estimate for it below, and an investment may be a losing one.

There is plenty of competition, as noted above. Alkami needs to scale its platform to be profitable. A major slowdown in growth rate would put this at risk and, likely, tank the stock.

All of the typical SaaS risks apply here as well, and in a magnified way as banking is such a sensitive and regulated business. Potential cybersecurity threats, system outages, and regulatory/compliance risks are all things to be aware of.

A final thing to consider is that most of Alkami's clients are smaller financial institutions. Through the decades we've seen constant consolidation in the space. Should a portion of its clients get consolidated into larger financial firms with their own IT operations, it will cost Alkami business.

Conclusion

I like Alkami's offering. It makes a lot of sense, as digital offerings are a real weakness of smaller banks who don't have the resources or expertise to build out large IT and software development operations. The SaaS model provides highly recurrent revenue, and being the customer "front door", this is a VERY "sticky" product once established. It has the characteristics of a "green dot" stock for certain.

Calculating a target stock price, though, is a little tricky. The low-end benchmark for SaaS is around a 20% free cash flow margin, and indeed management has indicated it expects long-term EBITDA margins to approach 35%. So my model assumes Alkami gets to that FCF margin eventually, but it isn't close today, so I've used an aggressive 12% discount rate. If we assume the company can grow revenues at about ~25% on average over the next 5 years, with a 5% dilution rate, I get a target price of $21 per share. With the stock trading a bit above that right now (close to $25), we will park this one in the Watch List and wait for a better price.

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