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Introduction

This is a new article from the Collective Fire Framework initiave, where we are analyzing Ashtead Technology Holdings. Member Wayne (Dragon Field Investing) is main contributor to this article, but it has been reviewed by other members including myself. I can recommend subscribing to the Dragon Field Investing Substack as well.

Quick Scan

Here is an earlier shared Quick Scan of Ashtead Technologies. It shows an Investment Readiness Score of 81.6%, which makes it ready for a deep dive.

History of the Business

Introduction

Many of us living in the US like hands-on DIY home projects. They are fun to do and can save us a lot of money compared to hiring professionals. Imagine that you have spent the last few weeks planning for a home project. You designed the plan, acquired all the necessary materials and supplies, and implemented it. You are excited to get it started over the weekend. Then you found you have a small problem. You realized that to get the job done right, you will need a special tool. You rushed to the nearby Home Depot and found the necessary tool. But it will cost a small fortune. For a $3,000 project, you don’t feel like spending an extra $500 for a special tool that you probably won’t use for another 10 years, if at all. Now, what do you do?

You may visit an equipment rental company, such as Home Depot Rental, United Rentals, or Sunbelt Rentals, to see if you can rent the tool for around $50/day for a couple of days. This rental option will save you $400, which is a significant savings on a $3,000 project. So, you have gotten a bargain by renting this tool instead of buying it.

Now, if you are the rental company renting out this $500 tool for $50 a day, you only need to rent it out for 10 days to earn back the entire cost of the tool. After that, any rental income from this tool will be pure profit. Depending on the type of tool, some can last forever and require no maintenance (e.g., a hammer). Of course, most sophisticated tools have a limited life span and require some maintenance. Let’s use the above $500 tool as an example and assume it has a 10-year usable life and requires about 5% annual maintenance. We believe we can generate rental income equivalent to 40% of the tool’s annual cost (cost utilization). In this scenario, our gross rental income on the $500 tool will be $200, and our net income will be $175 ($200 minus the $25 maintenance cost). For a 10-year usable life, this cash flow yields an Internal Rate of Return of ~33%. As you can see, the unit economics of a rental business can be pretty attractive. The subject of our deep dive, Ashtead Technology Holdings plc, is a business of this nature.

Origins and Founding

Ashtead Technology was initially founded in 1985 as a subsea specialty equipment rental supplier in the North Sea, providing offshore energy companies with high-spec subsea survey, inspection, and intervention equipment. In 1993, the business was acquired by Ashtead Group plc, a larger equipment rental company. Under Ashtead Group’s ownership, Ashtead Technology expanded its geographical footprint, opening facilities in Singapore in 1994 and in Houston in 1997, extending its reach into the Asia-Pacific and North/Central American markets, respectively.

A significant turning point occurred in 2008 when Ashtead Technology was divested from Ashtead Group through a management buyout, supported by Phoenix Equity Partners (”Phoenix”). This transaction marked the establishment of Ashtead Technology as an independent company. Following this divestment, Allan Pirie, then a partner at Phoenix and the current Chief Executive Officer, joined the company as the Chief Financial Officer in 2009 and was appointed CEO in 2012. During this period, the company refined its focus, concentrating on its core offshore energy market offerings and divesting its onshore-focused North American division in 2013.

Acquisition Strategy and Financing

In 2016, the company underwent another ownership change, being acquired by Buckthorn Partners and the Arab Petroleum Investments Corporation (”APICORP”). Under this new ownership, Ashtead Technology strategically broadened its capabilities, diversified its service offerings, and expanded its global presence. A key aspect of this strategy was to capitalize on the accelerating transition towards offshore renewable energy, thereby enhancing the business’s resilience.

Since 2016, Ashtead Technology has actively pursued a bolt-on acquisition strategy to consolidate the fragmented market and expand its service lines and geographic reach. It acquired nine companies worldwide from 2017 through early 2025.

These strategic acquisitions have been instrumental in shaping the company’s current strategy development, contributing to market share gains in addition to organic growth. Ashtead Technology successfully listed on the AIM market, operated by the London Stock Exchange, in November 2021. To improve liquidity, Ashtead Technology moved to the main LSE exchange on October 6, 2025.

The company pays a minimal dividend, yielding 0.37%. It utilizes all remaining Operating Cash Flow for growth and bolt-on acquisitions, through which Ashtead Technology has significantly expanded the scope and scale of its product and service offerings, and now has a total of 15 service hubs serving customers globally in its target markets. The latest Seatronics/J2 acquisition in 2024 (circa £63m) was funded by an extension to the Group’s credit facilities, which temporarily increased leverage.

The company has publicly signaled its intention to reduce leverage over the subsequent 12–18 months. Ashtead Technology’s strategy of acquiring complementary, strategically located rental fleets has both delivered scale and increased cross-sell opportunities (e.g., 85% of its rental equipment is fungible across oil & gas and renewables).

From 2017 to 2024, Ashtead Technology increased its EBITDA from £7.1 million to £80.9 million (pro forma with SeaTronics/J2 acqusition), with 44% growth from organic sources and 56% from M&A, as shown below.

Figure 1: Split of Organic Growth and M&A, from Ashtead Technology company presentation, FY24 Results

Management

Ashtead Technology’s management ranks and board of directors consist mainly of industry insiders. The current leadership team is stable. Allan Pirie (CEO) has been a long-term executive (previously in the CFO and commercial director roles), and Ingrid Stewart (CFO) was appointed in 2021. The board comprises a mix of non-executives with backgrounds in energy and engineering.

• Allan W. Pirie — Chief Executive Officer & Executive Director: Allan Pirie, the CEO, has 28 years of experience in the offshore energy industry. Allan joined the Company in 2009 as the CFO and was promoted to CEO in 2012. Before joining the Company, Mr. Pirie served as CFO at Triton Group, Commercial Director at Viking Offshore Services, and Business Strategy Manager at ASCO. He qualified as a chartered accountant with KPMG. At the end of 2024, Mr. Pirie owned 1,341,600 shares or 1.66% of the company.

  

• Ingrid Stewart — Chief Financial Officer & Executive Director: CFO Ingrid Stewart has 25 years of experience in the offshore energy industry. Ms. Ingrid joined the Company in early 2021 as Chief Financial Officer. Before joining the Company, Ingrid served as a Corporate Development Director at EnerMech and as a Director at Simmons & Company International. She held various roles at Deloitte, including Associate, Manager, and Assistant Director. At the end of 2024, Ms. Stewart owned 317,925 shares or 0.39% of the company.

• Other senior executives and non-executives: The leadership team comprises a Chief Operating Officer and Commercial Director(s); the Board includes a Non-Executive Chairman (William Shannon) and non-executive directors with industry and international experience.

Management Track Record and Incentives

• Track record — The management’s execution since 2018 demonstrates excellence in execution. Its revenue has grown materially from £37.7M in 2018 to £168M in 2024, an increase of 346% (28.3% CAGR) driven by a mix of organic growth and bolt-on acquisitions. Adjusted EBITDA grew 311% from £16.9M to £69.5M during the same period, for a CAGR of 26.6%. Those results are consistent with management’s stated strategy to scale quickly by combining fleet growth with international expansion, especially considering the challenging 2020, when the COVID-19 shutdown severely impacted all companies in the energy services sector.

• Share ownership and alignment — Overall, insider ownership is approximately 2.2%, which is relatively low compared to many other quality companies. However, there have been some positive developments recently, with several board members acquiring shares in the open market following the company’s HY2025 earnings release in August.

• Compensation structure & equity incentives — Ashtead Technology uses a mix of base salary, annual short-term incentive plans (STIPs), and Long-Term Incentive Plans (LTIPs). The company announced a conditional LTIP award in September 2025 and has engaged shareholders on LTIP policy (typical for growth companies that leverage equity-linked rewards to attract technical and international executives). The Remuneration Committee is explicit that awards are performance-linked and intended to align management with long-term shareholder returns. The performance criteria for LTIP rewards are:

• 50% for meeting EPS growth target

• 25% for meeting ROIC target

• 25% for meeting the total shareholder return (TSR) target compared to the proper market benchmark

The awards are subject to claw-back provisions in the LTIP program. It’s essential to recognize that, as more and more companies are pressured to adopt the American style of SBC, it’s challenging for them not to provide some level of SBC to attract and retain talent. So far, Ashtead Technology’s TLIP has resulted in only an insignificant dilution.

Bottom line on management

The executive team is experienced in the subsea and energy services sector, has demonstrable M&A and organic growth delivery, and uses equity incentives tied to long-term performance reasonably and prudently. For example, AT’s 2024 SBC as a percentage of revenue was 0.6%, which is compatible with small-cap peers in the offshore service industry (SEACOR Marine Holdings, 1.8%; Oceaneering, 0.4%; TGS ASA, 0.3%). The increased insider ownership and LTIP structures provide alignment, albeit not absolute control by founders; investors should track LTIP metrics, realized payouts, and dilution over time.

Culture

Since there are very few general publications about Ashtead Technology, including on third-party sites such as Glassdoor and Indeed, we can only gain a limited understanding of the company’s culture by reviewing its annual reports and conference calls. Our impression is that it emphasizes employee safety and well-being, given the harsh working environment frontline employees face. Their safety record is excellent, and they typically devote significant time and effort to discussing their OHSE (Quality, Health, Safety, and Environment) metrics in their annual reports. Management frequently mentions customers on each conference call, often stating that their most significant competitive advantage is their customer-centric approach.

Judging from their very successful M&A execution since 2017, their principle of prioritizing employee well-being and customer value is not just an empty slogan, but a core value of the company, and they have been practicing it as part of their DNA. Without a strong culture and core value proposition, it’s challenging to integrate the acquired teams. Of course, a real stress test of their culture and integration capacity will be the latest and most significant acquisition of Seatronics/J2, closed in November 2024. On August 26, 2025, when the company reported its HY25 earnings results, Mr. Pirie stated that Seatronics/J2 had been fully integrated into the AT operating system. The £3m annual operating synergy exceeded their initial estimate, and the acquired fleet is in better condition than expected. This will further enable AT to reduce repair costs by £3 million and capital expenditure by £5 million for 2025. As a result, AT lowered its 2025 capex from the initial £40m to £35m. They also divested the small, non-core ROV manufacturing business from Seatronics/J2 and reduced their involvement in lower-quality revenue activities that were prevalent in Seatronics. This is a classic example of Ashtead Technology executing its M&A strategy; in our opinion, it reflects a strong culture, which has played a significant role in their operational excellence and business outcomes.

• Safety and reliability: A safety-first culture reduces downtime and incident risk, which is critical to maintaining long-term contracts with blue-chip energy customers.

• Technical depth: Investing in training and integration improves field problem solving (a differentiator in complex offshore operations).

• Integration agility: A repeatable acquisition integration framework strengthens the firm’s ability to scale across geographies without losing service quality.
  

Compared to other larger global subsea service providers or smaller rental peers, Ashtead Technology’s culture is more focused on specialty subsea equipment rental and technician delivery than on pure equipment sales and lower-margin direct project execution. Their frequent M&A requires a pragmatic, assimilation-oriented culture. External commentary from customers suggests that Ashtead strikes a balance between commercial growth and technical professionalism, a characteristic of well-run niche subsea operators.

In conclusion, Ashtead Technology projects a professional, safety-oriented culture with a strong focus on technical training, acquisitions integration, and supporting the offshore services industry and the energy transition. External review signals are broadly consistent: technically demanding, learning-rich, and with the usual pressures of fast-growing, field-oriented service businesses.

Industry Overview and Business Model

Industry Segment

The broader subsea equipment market is a much larger industry that services Offshore Oil and Gas (O&G), renewable energy, telecommunications, mining, and scientific research, of which O&G has the largest share. The offshore wind market is expected to have the highest growth potential in the coming decades. The specialty subsea equipment segment, where Ashtead Technology operates, however, constitutes a relatively small niche (~4%) of the total subsea equipment rental market. We view this small share within a huge market as a positive for Ashtead Technology. Since Ashtead Technology’s specialty equipment plays a critical role in the overall project, it’s much less likely to face high cost pressure compared to other high-value, higher-volume inputs, such as drill rigs, supply boats, and subsea machinery.

According to Rystad Energy, the total addressable market (TAM) for the specialty subsea equipment rental is projected to grow at 8% CAGR from 2024 to 2028, with offshore wind the highest at 15%, followed by O&G decommission (14%), and O&G IMR (Inspection, Maintenance, and Repair) & Construction support (4%), as shown in the figure below. As more offshore wind facilities are installed, they will require increasing IMR services and, eventually, decommissioning. This will provide more IMR revenue stream in the coming decades.

Figure 2: Subsea Specialty Equipment Rental TAM, from Ashtead Technology company presentation, HY25 Results

If Rystad analysts are correct about the growth potential of the overall offshore energy market, and consequently, the total addressable market for subsea specialty equipment rental, Ashtead Technology will have a long runway to execute its strategy. As Figure 3 shows, Ashtead Technology has been growing its market share as a percentage of estimated TAM at an accelerating rate in recent years, demonstrating its successful M&A strategy on top of organic growth.

Figure 3: Subsea Specialty Equipment Rental Market TAM and Ashtead Technology Market Shares, from Company Presentation, FY24 Results, and Dragon Field Investing

Business Model

While the overall subsea equipment rental market is highly cyclical, as a large portion of offshore energy capital expenditure is allocated to new projects, the small niche that Ashtead Technology occupies is less cyclical and more diversified than investors often perceive. Traditionally, offshore capital expenditures (capex) are primarily driven by sustained periods of higher oil prices. Therefore, when oil prices are low, O&G companies tend to slow the pace of new exploration, new field development, and production enhancement projects to conserve cash on their balance sheets. However, they rarely cancel a project based on short-term prices because offshore oil and gas (O&G) exploration and development is a long-cycle business; therefore, the O&G companies tend to make decisions with a very long time horizon. This is in stark contrast to their onshore counterparts, especially the shale oil and gas projects. On the renewable side, new capital expenditure (capex) projects are still relying on government subsidies. However, in the long run, offshore wind is viewed as the growth engine due to its higher capacity factor compared to solar farms and onshore wind counterparts; therefore, it is more suitable for utility-scale deployment.

Ashtead Technology has positioned itself to avoid relying too heavily on the traditional offshore oil and gas (O&G) capital expenditure boom or the rapid growth in the emerging offshore wind industry. Ashtead Technology’s equipment and solutions are critical to many offshore activities, including wind and O&G, at every stage of the project life cycle, from project development and construction to IMR and the eventual decommissioning. When the market for new capex is soft, many operating firms tend to allocate limited resources to production enhancement measures, thereby driving higher requirements for IMR. If renewal and energy transition are viewed more positively, the decommissioning of older oil and gas (O&G) fields tends to accelerate, along with renewable capital expenditure, since many of the large-scale offshore wind projects are also owned by the same large energy companies. For example, Ashtead Technology’s renewable revenue grew significantly faster before 2021, driven by the positive momentum of the energy transition, but slowed down since 2022, following Russia’s invasion of Ukraine and the heightened focus on energy security across the Western world. As a result, Ashtead Technology’s O&G revenue has grown faster than that from renewables, as shown in Figure 4. This again demonstrated the resilience of Ashtead Technology’s business model.

Figure 4: Ashtead Technology Segment Revenue Share and Y-o-Y Growth, from Company filings and Dragon Field Investing

In Figure 3, we previously showed that Ashtead Technology has been gaining market share at an accelerating pace since 2021, alongside healthy industry growth. In the following two charts, we plot Ashtead Technology’s total revenue and adjusted EBITDA from 2018 to 2024. Ashtead Technology did its IPO in November 2021; typically, we would use the data series from 2021 to 2024 to better reflect the effectiveness of its business strategy since the IPO. However, since the offshore energy service industry is notorious for its cyclicality, and the once-in-a-century pandemic event in 2020 served as a significant stress test of its business resilience, we have deliberately included the dataset going back to 2018. On April 20, 2020, as the deadly COVID-19 virus spread across the globe and most non-essential business activities were halted, WTI crude oil was sold for negative $37.63 a barrel in the futures market, marking the first time in history that an oil producer had to pay someone to take their oil. As shown in Figures 5 and 6 below, in 2020, the company’s revenue and adjusted EBITDA indeed decreased by 11.26% and 18.25%, respectively. However, both metrics recovered very quickly in the subsequent years. For the period from 2018 to 2024, their revenue and adjusted EBITDA grew at healthy CAGRs of 28.3% and 26.7%, respectively, despite the challenging year of 2020.

Figure 5: Ashtead Technology Revenue, YoY Growth, and CAGR, 2018-2024, from company filings and Dragon Field Investing

Figure 6: Ashtead Technology Adj. EBITDA, YoY Growth, and CAGR, 2018-2024, from company filings and Dragon Field Investing

Revenue Mix — Segments and Geography

Ashtead Technology reports operations across three high-level service lines and markets that are used in its public materials:

1. Survey & Robotics (core): Rental and services for survey equipment (sonar, positioning, metocean sensors), ROV fleets, autonomous vehicles, and robotics solutions for inspection and subsea tasks. This is the most extensive single product line, and the target area expanded materially with the Seatronics/J2 acquisition (added ~7,000 assets and significant regional reach).

2. Mechanical Solutions: Mechanical tooling and intervention rental & services — including subsea cutting, dredging, mooring, and riser inspection tools, recovery tools, and ACE winches — are mission-critical for intervention and decommissioning tasks. These capabilities were expanded through prior acquisitions.

3. Asset Integrity: Imaging & inspection, marine growth removal, monitoring, and condition assessment services—these feed recurring maintenance cycles for wind farms and oil & gas assets. The company markets these services as complementary to rental fleets and as higher-value project work.
   

With over 30,000 pieces of equipment in its rental fleet, AT can supply its customers with a wide variety of specialized tools that are difficult and expensive to keep in-house. I have included a screenshot below as an example of some of their survey and robotics tools:

Figure 7: Example of Survey & Robotics Tools from the company website

Geographically, AT services customers in Europe, South and North America, Australia, the Middle East, Africa, and Asia (excluding China). As indicated in the figure below, AT is well-positioned to benefit from growth across all key offshore geographies.

Figure 8: Service Hubs & TAM for Key Geographies

Case Study: A Recent Customer Engagement

Since AT’s competitive advantages are not well understood by investors and the analyst community, on the 1H25 earnings call, CEO Allan Pirie walked through an example of a project scheduled to start in September 2025, as illustrated in Figure 7. For this project, the client would deploy two vessels from the UK to West Africa for 210 days to modify and refurbish an existing gas facility. AT provided a suite of equipment across all three of AT’s service areas: Survey & Robotics, Mechanical Solutions, and Asset Integrity. AT provided survey equipment for survey positioning and data acquisition for as-built records, tooling for dredging activities, communication and camera systems for vessel monitoring and subsea equipment positioning, and winch systems to pull the subsea cables. This suite of equipment and service packages is the result of four acquisitions in recent years: Forum in 2017, WeSubsea in 2022, ACE Winches in 2023, and Seatronics in 2024. Needless to say, this kind of capacity is challenging for AT’s smaller competitors and its largest clients to develop internally. Customers benefit from:

• Technical - Fully integrated supply, removing multiple suppliers and equipment interfacing risk.

• Administrative - Reduced the need for negotiating with multiple parties and potential delays and miscommunications; administrative benefits of one contract, one purchase order, and one monthly invoice.

• Support - 24/7 support from one provider with deep technical expertise and customer knowledge.

Remember that cost for the subsea specialty rental equipment is only a tiny portion of a project like this, therefore, it’s vital for a service provider to help the client to reduce the risk of equipment breakdowns, operator errors, logistic mistakes, and any unnecessary project delays, since these vessels and operations are costly compared to the equipment and services provided by AT. During the call, Mr. Pirie claimed that no single competitor can offer this broad range of equipment and services as a single, consolidated package.

Figure 9: Integrated Project Support Offers Superior Customer Value, from 1H25 Earnings Conference

Strategy and Moat

Since 2017, Ashtead Technology has pursued a strategy to: (1) support the energy transition (grow renewables exposure), (2) strengthen its position as a market leader in subsea technology solutions, (3) leverage a global presence to internationalize offerings, and (4) augment organic growth with selective M&A to scale the fleet and capabilities. Management often emphasizes “fungibility” (equipment usable across markets), repeat customer relationships, and disciplined integration of acquisitions.

For people familiar with cyclic industries such as offshore O&G services, AT’s consistent growth, profitability, and high ROIC might be a surprise. This kind of intense and persistent performance is not often found in a simple, boring business servicing a notoriously cyclical market like offshore energy services. The question is, what are their moats?

Network Effects - 3/5

While Ashtead Technology does not have strong network effects, it does benefit from an operational network in each local area where it serves. It can deploy its equipment more quickly, provide localized support, and improve asset utilization. Currently, Ashtead Technology’s asset utilization is at 46%. Given the significant asset base, fungibility, and mobility of the assets, having this large and growing global network of service hubs will undoubtedly improve their competitive position.

Switching Cost - 2/5

Clients renting subsea kits and paying for technicians can switch suppliers, but doing so is non-trivial: qualifying a new supplier requires safety checks, pre-mobilization certification, and trust in technical competence. Long-term framework contracts raise switching friction. However, switching is not impossible; well-resourced competitors exist globally. Ashtead Technology’s fleet scale and repeat experience raise the effective switching cost for major operators.

Intangible Assets - 2/5

The great majority of Ashtead Technology’s 30,000+ assets were bought and leased from equipment suppliers, so any of Ashtead Technology’s competitors can purchase or lease the same equipment. Ashtead Technology may have a slight edge here due to its larger size, but the advantage is relatively minor, in our view. Ashtead Technology does have the internal capacity to design and fabricate one-off, unique equipment if no off-the-shelf tools can do the job. This does give them a slight edge over their smaller competitors.

Cost Advantage - 4/5

Ashtead Technology’s assets increased from 17,000 items in 2021, at the time of the IPO, to over 30,000 by the end of 2024, some through organic growth and others through mergers and acquisitions (M&A). This large and broad asset base, along with the knowledge embedded in its workforce, enables Ashtead Technology to achieve higher asset utilization and a cost advantage. As mentioned previously, 85% of their assets are fungible, and with a denser global network of service hubs, they can ship their equipment from underutilized areas to areas of higher demand.

While a direct, robust peer-to-peer margin comparison with specific subsea equipment rental competitors is challenging due to limited publicly available financial data for those niche players (e.g., STR Subsea, Unique Group, Oceanscan, Kongsberg Discovery), the consistently high margins and rapidly growing market share at Ashtead Technology suggest a favorable cost structure relative to the value it provides. The ability to maintain these margins amidst rapid growth and integration of new businesses indicates substantial operational leverage. This makes it challenging for smaller, less diversified competitors to achieve similar cost efficiencies, creating a small “flywheel” for Ashtead Technology. If Ashtead Technology can continue to grow, its cost advantage will likely increase compared to its competitors.

Brand Power - 3/5

Within the subsea rental niche, Ashtead Technology has a recognized brand and a good reputation—particularly with large energy clients—earned through reliability and technical depth. Subsea construction is a high-cost and dangerous endeavor; customers care more about the breadth of tools, reliability, availability, client knowledge, and service orientation. As the case study of integrated project support illustrates, Ashtead Technology has built a strong brand of “one-stop shop” that can support clients in large and complex projects. The Seatronics/J2 acquisition added a well-known brand in survey electronics, further strengthening Ashtead Technology’s brand recognition in the industry.

Regulatory Barriers - 2/5

Entry barriers are medium. Serving offshore markets requires certifications, safety systems, and insurance; these raise the bar. However, there is no obvious regulatory moat (license or patent) that excludes entrants—large players or regional specialists can build compliant offerings. Regulatory complexity helps incumbents but does not create insurmountable barriers.

Overall Moat Strength - 3/5

As we assess Ashtead Technology’s moats, we should review a famous quote from the excellent investor Nick Sleep. Too often, quality investors are so fixated on finding that one big moat that will make the company 100 times better than its next competitor, yet fail to realize that such a moat can be pretty vulnerable. As a former professional Civil Engineer and IT executive with decades of experience in lean manufacturing and a “Greenbelt” in Six Sigma, I knew firsthand that excellence in any complex engineering field requires doing hundreds of little things right, day in and day out. It’s rarely “one big thing”. As for Ashtead Technology, its moats may include the total process and technical expertise of its personnel, its customer relationships, its database of over 30,000 assets, the efficiency of its dispatch and logistics systems, its disciplined approach to mergers and acquisitions, and its integration with existing operating systems. We believe it’s the sum of many small advantages that have helped the company achieve such an excellent result in a seemingly unexciting and straightforward business.

The company’s moats can be graphically presented as in this chart below:

Figure 10: Moat Analysis, authors

Porter’s Five Forces Analysis

Applying Porter’s Five Forces to Ashtead Technology:

1. Threat of new entrants — Moderate: In theory, anybody with capital and a willingness to get into this business can buy some specialized subsea equipment, obtain a QHSE certification, hire some experienced technicians, acquire logistics capability, and start to offer a similar service. In practice, however, successfully competing with an established, leading incumbent, such as Ashtead Technology, won’t be easy. For example, Ashtead Technology’s 30,000 assets are carried at a cost far below their current replacement value due to the high inflation in recent years, putting any new entrant at a significant cost disadvantage. More importantly, Ashtead Technology’s 15 global service hubs, highly skilled employees, and client relationships are much more difficult to replicate, therefore forming a substantial barrier to new entrants.

2. Threat of substitutes — Low to Moderate: Clients may opt to purchase equipment (capex) instead of renting, or bring work in-house. According to AT’s estimate, 65% of all subsea specialty equipment is owned by customers. However, operators usually prefer outsourced specialists for scale & spare capacity. Substitution is limited for complex projects requiring certified crews.

3. Buyer power — Moderate to High (for large customers): Large national oil companies and major offshore contractors place significant contracts and possess substantial negotiating leverage; the concentration of large clients amplifies buyer power. However, the technical nature and proven track record of suppliers like Ashtead Technology reduce buyer willingness to switch frequently. Framework contracts mitigate price pressure.

4. Supplier power — Low to Moderate: Equipment OEMs (multibeam sonar makers, ROV builders), specialized tooling makers, and crewing/labor markets for skilled ROV pilots and engineers. Supplier bargaining power for critical components (e.g., specialized sensors) can be material if there are few OEMs. However, Ashtead Technology often buys and leases at scale, can negotiate effectively, and the secondary market for subsea equipment is active. Labor supply tightness for skilled technicians can lead to increased costs.

5. Competitive rivalry — Moderate: The subsea equipment rental industry is fragmented, with Ashtead Technology leading the consolidation of the sector. Currently, AT’s major competitors are all private companies, among which Asteon Group, STR Subsea, and DeepOcean Group are the largest. Interestingly, AT’s latest acquisitions, Seatronics and J2 Subsea, were previously subsidiaries of Asteon Group; therefore, the extent of overlap between AT and Asteon is unclear. In fact, AT’s biggest competitors are AT’s customers, who own ~65% of the survey and robotics in-house.

Growth Drivers

As discussed previously, while IMR revenue and the natural complementary effect between offshore O&G and wind can mitigate Ashtead Technology’s revenue lumpiness to some degree, they can’t eliminate it. Therefore, it would be helpful if we step back and examine offshore capex from a macro perspective.

One misperception by some investors about the traditional O&G market is that it has peaked or will peak soon, either due to resource exhaustion or the transition to renewables and EVs for transportation. Peak oil has been a topic of discussion since the 1970s. Still, over the last 50 years, oil companies have discovered more and more oil reserves, primarily in US shale formations and offshore fields, while the world has continued to consume increasing amounts of oil. As shown in the chart below, oil consumption has declined only rarely, except during the COVID-19 pandemic period.

Figure 11: World Oil Consumption and Projection by Vitol

Art Berman, an energy expert, has written extensively on peak oil for many years. As illustrated in the chart below, the most significant development in global oil production over the past 15 years has been the US shale oil revolution. As of July 2025, the US produced a total of 13.6 million barrels per day of oil, of which 8.3 million barrels are from shale. Here lies the good news for offshore O&G capex: The shale fields are quickly being depleted, so most of the new O&G production will have to come from offshore. In addition, I am doubtful that the world will need less oil and gas over the next 15-30 years, despite the projected huge demand for electricity from power-hungry AI data centers. The world will likely need more oil, not less, in the coming decades. Here I would invoke the Jevons’ Paradox: As we discover more sources and more efficient ways of producing energy, we will find more ways to use them all. Another renowned energy expert, Vaclav Smil, has repeatedly noted that energy transitions often aren’t so much about transitions as about additions.

Figure 12: World Energy Production, Art Berman

In a recent presentation, offshore and energy expert Rystad Energy predicted significantly higher offshore capital expenditure spending, averaging $80 billion per year from 2025 to 2030, compared to the $50 billion annual average from 2020 through 2024.

Figure 13: World Oil Consumption and Projection by Vitol

Rystad Energy also projects healthy growth in offshore wind through 2030, despite the recent US policy changes under the Trump administration, as shown in the chart below. However, I do want to call out that AT’s business model does not really depend on the outcome of the energy transition from fossil fuel to renewables. As long as the aggregate GDP continues to grow, more energy will be needed, regardless of the sources, unless nuclear and/or fusion become the dominant ones.

Figure 14: Offshore Wind Installed and Projected Capacity, Rystad Energy

In summary, Ashtead’s growth drivers include:

• Higher O&G and renewable capex spending due to higher energy demand in the coming decades, especially the high GDP growth in the “Global South” and energy-hungry AI datacenters.

• More offshore wind farm facilities and depleted oil and gas (O&G) assets will keep Ashtead’s rental fleet utilized, smoothing out the fluctuations in new project revenue.

• Continuation of M&A activities in a still highly fragmented niche market.

• Increasing penetration of robotics/autonomy for offshore projects.

• Upsell and bundle equipment, technicians, and project engineering to enhance the competitive position.

• Potential large-scale offshore facilities for carbon capture and storage facilities, which will require both construction support and life-cycle IMR services, are a natural fit for Ashtead’s products and services.

Financials

Key Financial Metrics

Ashtead Technology’s profitability and return on investment are rare in the cyclical offshore energy services sector, with a margin profile and consistency that rival those of SaaS companies.

Figure 15: Revenue and Margins, Fiscal.ai

With ample growth opportunities, the company has been investing heavily by acquiring rental fleet and through bolt-on acquisitions. Following the recent acquisition of Seatronics/J2, the net debt-to-EBITDA ratio has increased from a low of 1.1 in 2022 to 1.8 in 2025. However, the company’s healthy cash flow generation capacity can rapidly reduce its leverage.

Figure 16: OCF & capex, Fiscal.ai

Ashtead Technology pays a small dividend twice a year, yielding 0.32% at the current share price of £3.7. Long-term shareholders should welcome the company’s decision to reinvest all its free cash flow in organic growth and M&A, as retained earnings have generated excellent returns with an ROIC of the mid-20%.

Figure 17: Financial Highlights, Company FY25 Earnings Presentation

Valuation

Over the last few years, Ashtead Technology’s stock price has been closely tied to its forward P/E ratio. However, this relationship changed in early 2024, when the current offshore investment slowed down, and analysts’ estimates of forward earnings were significantly reduced, as shown in Figure 15. However, we believe the analyst’s Forward P/E estimates are too pessimistic, and the P/FPE ratio of 8 is too low. If it returns to the historic mean of 12, it would lift the price by 50% even without analysts raising their Forward P/E estimates.

Figure 18: Market Cap vs Forward P/E, Fiscal.ai

Reverse DCF

We can also value Ashtead Technology by conducting a Reverse DCF analysis. To do so, we have to calculate the free cash flow for year 1. Althought 2025 is almost over, we will use this year as year 1. Assuming a revenue of £203 million, a gross profit margin of 77% and and operating income ratio of 26% the net income is project at £35 million. Adjusting for depeciation & amortization (£27 million) and capital expenditures (£35 million - as shared by management) and taking a change in Net Working Capital of -£7 million, as Ashtead will increase invetory to support their expected growth. We calculated a FCF of £25 million for year 1. If we use this number as the start point for year 1 in the DCF calculation, and use 2.5% for the terminal growth rate and 10% for the desired discount rate, the Reverse DCF model shows that the market at the current (December 22, 2025) price of £3.19 per share, prices in a growth of free cash flow of 4.1% per year for the next ten years, as shown in Figure 16. Recall that in Figures 5 and 6, we showed that Ashtead Technology had grown its revenue and EBITDA YoY in 2024 at 52% and 44%, respectively. For the period from 2018 to 2024, the company grew its revenue and EBITDA at a CAGR of 28% and 27%, respectively.

Figure 19: Reversed DCF Model

Discounted Cash Flow Model

Next, let’s estimate a fair value for AT’s stock price using more realistic assumptions. From Figure 3, we observe that the company has steadily increased its market share as a percentage of TAM from 2.22% in 2018 to 6.68% in 2024, representing a CAGR of 20%. From Figure 2, we learned that the Total Adressable Market for the subsea specialty equipment was projected to grow at 9% CAGR through 2028. To err on the conservative side, let’s assume the company can grow at this 9% CAGR, which is less than half its historic growth rate. Using the £25M FCF as the starting point and a 10% discount rate, the DCF model would yield an intrinsic value of £4.90, representing approximately 54% downside from the current price (£3.19). Although our assumptions for the growth rate are already very conservative with a starting year of 2025 which is almost over and a low growth assumptions, it’s still good to add a margin of safety as the free cash flow may vary because of historical fluctuations in Net Working Capital. Because we are already conservative I think it’s fair to apply a 30% margin of safety instead of 40%. A 30% margin of safety gives a buy below price of £3.40. This shows Ashtead Technologies is valued at a very interesting price at the moment.

Figure 20: Intrinsic Value Estimate using DCF Model

Risks

As a service provider in the global offshore energy industry, Ashtead Technology faces many risks that could impact its ability to execute its organic and M&A strategy. These risks can range from low (1) to high (3) on the severity rating scale.

• Market cyclicality/demand volatility (Severity 2, Moderate): Ashtead Technology’s revenue is heavily exposed to offshore capital expenditure (capex) cycles, which can fluctuate sharply due to changes in commodity prices, geopolitical events, pandemics, and recessions. The company’s diversification across the oil and gas (O&G) and renewables sectors, along with its focus on IMR revenue streams, can mitigate the cyclicality to some degree.

• Integration & M&A execution risk (Severity 2, Moderate): Rapid acquisition adds people, assets, and systems that must be integrated; failure to integrate can cause operating inefficiencies, attrition, and diluted returns. The latest Seatronics/J2 update added 110 people and 7,000 assets—signifying significant integration work. Fortunately, Ashtead Technology has a repeatable playbook and an experienced integrations team, and the latest KPIs indicate that this integration has been performing better than planned.

• Fleet underutilization/capex risk (Severity 2, Moderate): Investing in the fleet ahead of actual demand or misjudging utilization can result in significant depreciation and financing costs. Capital intensity means that wrong timing is costly. The company has been mitigating this risk by leasing a portion of the rental fleet instead of owning 100%.

• Supply chain & OEM dependency (Severity 1, Low): Long lead times for specialized sensors or ROVs, as well as component shortages, can delay fleet expansion and maintenance. Supplier concentration can create price or availability risks.

• Labor & technical staff shortages (Severity 1, Low): ROV pilots and survey engineers are in demand; shortages drive wage inflation, affect delivery capability, and increase mobilization costs. The company’s emphasis on training and retaining the local talent following each acquisition significantly reduced this risk.

• Customer concentration/contract risk (Severity 2–3, Moderate–High): The recent merger of Saipem and Subsea 7 continues the consolidation trend in the subsea service industry. Losing a major contract can materially dent results in a project-heavy year. Frameworks mitigate risk but do not eliminate it.

• Regulatory & environmental risk (Severity 3, High): Offshore projects are subject to environmental approvals and changing regulations (e.g., decommissioning rules, wind permitting), which can impact project timing and execution.

• Financing & leverage risk (Severity 2, Moderate): M&A transactions funded by credit facilities increase leverage and expose the company to interest costs. Management has stated its intent to reduce leverage post-acquisition. High rates increase financing costs and could constrain future acquisitions.

• Technology & competition risk (Severity 1, Low): Advances in autonomy, cheaper AUVs, or competitor cost structures could compress day rates.

• Reputation & safety incidents (Severity 3, High): Offshore safety incidents can lead to reputational damage, increased insurance costs, and contract losses. QHSE is central to winning work.

Of all the risks, the regulatory risk is the most severe. As a UK-based company, Ashtead Technology may face arbitrary regulations due to public sentiment, as indicated by recent experiences of oil and gas companies. In May 2022, after Russia invaded Ukraine and oil prices skyrocketed, the UK government quickly introduced a new law, the Energy (Oil and Gas) Profits Levy (EPL), commonly known as the “windfall tax”. It raised the tax rate from 25% to 65% for oil and gas (O&G) upstream companies, resulting in a nearly 40% decline in the stocks of several O&G companies with significant operations in the UK. Since AT’s revenue is not directly tied to the oil price, I believe a similar “windfall tax” is less likely. However, this risk is still a remote possibility for any company operating in the UK.

Investor Takeaway

1. Core strength: A focused specialist rental + services model with substantial technical depth and an M&A track record that has rapidly scaled survey & robotics capability (Seatronics/J2 added ~7,000 assets and regional reach). Ashtead Technology has established a strong niche for long-term, profitable growth.
   

2. Key dependency: Continued demand from offshore energy (oil & gas capex cycles and accelerating offshore wind operations and maintenance), as well as the ability to maintain high fleet utilization—loss of large projects or capex cuts would materially impact near-term results. The current stock price has fully priced in these concerns, and the popular narrative about the rate of decline in offshore oil and gas capital expenditure (capex) activity is exaggerated.
   

3. Top growth driver: Offshore O&G and renewable new projects and an increased level of IMR, decommissioning work, and strategic M&A that increase fleet density and cross-sell options—these together can sustain mid-teens topline growth if executed well.
   

4. Main risks: Integration, capital intensity, and cyclicality—overpaying for acquisitions, underutilized fleet, or adverse macroeconomic conditions (capex cuts, vessel/crew shortages) could compress margins.
   

5. The biggest unknown: The pace of transitioning into a nuclear and fusion-based energy mix.

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Disclaimer

The information in this article is provided for informational and educational purposes only.

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Introduction

This is a new article from the Collective Fire Framework initiave. Member Giacco is main contributor to this article, but it has been reviewed by other members including myself. I would definitely subscribe to his Substack as well.

Quick Scan

Here is an earlier shared Quick Scan of Norbit. It shows an Investment Readiness Score of 89%, which makes it ready for a deep dive.

History of the Business

NORBIT ASA was founded in 1995 in Trondheim, Norway, with a mission to provide tailored technology solutions to a selection of niche markets. The company’s early years were focused on building a foundation in market-driven innovation. A pivotal moment in its history came in 2009, when NORBIT was restructured into the three key business segments that define the company today:

• Oceans,

• Connectivity (formerly Intelligent Traffic Systems or ITS)

• Product Innovation & Realization (PIR).

This strategic move diversified its business model, reducing dependence on any single market and positioning it for scalable growth across different industries.

This timeline of events leading up to NORBIT’s IPO provides insight into the company’s early development and key milestones.

NORBIT ASA Prospectus for IPO

A significant milestone for NORBIT was indeed the company’s successful listing on the Oslo Børs in June 2019. The initial public offering (IPO) was described by CEO Per Jørgen Weisethaunet as the “starting-line, not the finish-line,” providing the capital to support a higher level of ambition for further growth and development. The IPO also saw significant participation from the company’s own workforce, including the board and executive management, demonstrating strong internal confidence in its future value creation.

Since its public listing, the company’s growth trajectory has been marked by a consistent focus on research and development, allowing it to stay at the forefront of technological innovation in its chosen niches. NORBIT’s strategy involves identifying market-driven needs where it can apply its advanced technology to solve complex challenges for customers. This approach has led to a history of strong, profitable growth. From IPO to 2024, the company achieved an outstanding compounded annual revenue growth of 21%.

NORBIT’s growth reflects a clear strategy aimed at capturing higher-margin opportunities and expanding its international footprint. The company has successfully built a competitive and defensible product portfolio, progressively strengthening vertical integration through R&D partnerships and targeted acquisitions.

Another distinctive element is the strong connection with Trondheim, one of Norway’s main tech hubs. Its proximity to NTNU, the largest engineering research and education centre in Norway, ensures privileged access to scientific expertise and a pool of qualified talent. People development is pivotal in NORBIT’s culture:

“Talent and culture have always been at the heart of our priorities. Ensuring that we continue to attract the right people, offer them the right seat, and create an environment where they can grow both as individuals and as a team is essential for the journey ahead.” (Per Jørgen Weisethaunet, CEO of NORBIT ASA; Annual Report 2024)

NORBIT ultimately represents a clear example of how technological excellence and strategic vision can translate into sustainable growth and international competitiveness.

The company currently employs around 600 people of 40 different nationalities, with operational hubs in Norway and Hungary – its main locations, accounting for 87% of the workforce – as well as in the USA, and several sales and service offices around the world.

NORBIT’s Annual report 2024 presentation

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Management

NORBIT’s management and board are characterized by long tenure, significant industry experience, and high insider ownership, which suggests strong alignment with shareholder interests.

Before reviewing current management, a brief note on the founder is warranted: Steffen Kirknes. While he no longer holds an executive or board position – having stepped down before NORBIT’s IPO in 2019 – he still plays a role in the company as “Talent manager”, though it appears to be more symbolic or strategic than operational. He remains a significant shareholder through two different private investment companies: VHF Invest AS (wholly owned by Steffen Kirknes), which owns approximately 9.8% of NORBIT and Draupnir Invest AS (controlled by Kirknes family) which owns about 5,7% of NORBIT. Combined, Steffen Kirknes still control 15.5% of NORBIT’s shares.

Key Executives

Per Jørgen Weisethaunet, CEO. As one of NORBIT’s earliest employees, Weisethaunet has played a pivotal role in shaping the company’s strategic direction and growth over the past two decades. Appointed CEO in 2001, he has led NORBIT through its IPO and into a phase of accelerated expansion, demonstrating remarkable leadership continuity in a sector often marked by high executive turnover.

Weisethaunet brings a unique blend of expertise in maritime technology operations and M&A, which has been instrumental in NORBIT’s evolution. His annual compensation totals NOK 7.8 million, with 47% derived from base salary and 53% from variable components, including performance-based equity awards.

Since becoming a co-owner in 2008, Weisethaunet has acquired a 11% stake in NORBIT, aligning his personal financial interests with the company’s long-term success. This ownership structure reinforces his commitment to sustainable value creation. His leadership philosophy is anchored in NORBIT’s core value: “We deliver”, a principle that has become deeply embedded in the company’s culture.

Per Kristian Reppe, CFO. Reppe joined NORBIT as CFO in 2020 and has since played a key role in shaping the company’s financial strategy and reporting framework. Frequently appearing alongside the CEO during earnings calls, Reppe provides in-depth financial insights and supports transparent communication with investors. His tenure aligns with NORBIT’s phase of accelerated growth and increasing financial sophistication. Reppe has been instrumental in managing strategic acquisitions, scaling operational capacity, and aligning financial planning with the company’s long-term objectives. His financial leadership continues to support NORBIT’s expansion and execution of its strategic initiatives.

Other Executives

The executive team also includes a COO, CTO, and Business Unit Directors for Oceans and ITS, many of whom have been with the company for over a decade and hold significant share positions.

Board of Directors

The board is composed of experienced individuals from various sectors, a mix of industry veterans and investor representatives. The board has committees for audit, remuneration and M&A oversight. Finn Haugan, the Chairperson since 2019, has a background as a prominent figure in the Norwegian financial industry.

Shareholder Alignment and Incentives

A key strength of NORBIT is the high degree of insider ownership. In September 2025, insider ownership was reported at more than 25%.

This significant “skin in the game” for management and board members is a strong indicator that their interests are aligned with those of long-term shareholders. This as a factor that positions the company with the right tools to potentially outperform, as leadership is directly invested in disciplined capital allocation and value creation.

NORBIT uses share-based incentive schemes for management and key employees. The Annual Report discloses share option programmes and restricted share grants; compensation is a mix of cash salary, short-term cash bonus and long-term equity incentives tied to performance metrics (revenue, EBIT/EBIT margin, Total Shareholder Return and integration milestones). The company reports the accounting cost of share-based compensation; in recent years the programme cost as a % of revenue (about 1,1%) is modest but meaningful given size of the company (detailed percent values appear in the remuneration note of the Annual report).

Based on NORBIT’s remuneration guidelines:

• Fixed Cash Salary: Executives, including the CEO, receive a fixed base salary that is benchmarked for market competitiveness and considers the scope, responsibility, experience, and performance relevant to each position.

• Pension and Non-Financial Benefits: Pension benefits are aligned with local practices, generally not exceeding 10% of fixed annual salary unless local law dictates otherwise.

• Cash-Based Incentive Programme: Executives are eligible for an annual cash-based performance bonus. This component is capped at 40% of annual fixed salary. The payout is determined by achieving key financial and operational targets, specifically:

  • Organic revenue growth between 10 and 16% (20% weight; has been reduced from 2023)

  • EBIT margin between 15 and 20% (20% weight; stable but in 2023 EBITDA accounted)

  • Pre-tax ROCE between 25 and 30% (20% weight; newly introduced)

  • Total shareholder return – share price return plus dividend paid – between 10 and 20% (20% weight; down from 2023)

  • Discretionary assessment by the board/CEO for key performance in focus areas (20% weight; stable)

• Long-term Equity Incentive Programme (RSUs): Executives participate in a restricted share unit (RSU) plan. Annually awarded RSUs are based on the same performance criteria as the cash bonus. RSUs vest over three years, promoting retention and alignment with shareholder interests.

NORBIT’s approach ensures a clear link between executive pay, company performance, and shareholder value through a balanced use of fixed salary, annual and long-term incentives, and clear performance metrics.

Credibility and Target Achievement

NORBIT’s management has a track record of setting ambitious targets and meeting or exceeding them.

In 2022, the company stated it was on track to reach its ambition of NOK 1.5 billion in revenue and a 25% EBITDA margin by 2024. By the end of 2023, NORBIT had already achieved these targets one year ahead of schedule, reporting revenues of NOK 1.52 billion. Following this success, the company set a new long-term ambition for 2027: organic revenues exceeding NOK 2.75 billion and an EBIT margin of around 20%. The initial 2025 revenue target of NOK 2.2-2.3 billion, set in February 2025, was already deemed “conservative” by May 2025 after a strong Q1 performance. The target was subsequently revised upwards to NOK 2.5-2.6 billion after a strong Q2.

This history of hitting or surpassing financial goals lends significant credibility to the management team. In the Q1 2025 earnings call, CEO Per Jørgen Weisethaunet emphasized that the company lives by its core value, “We deliver!”.

Capital Allocation & Shareholder Returns: Growth, Discipline, and Value Creation

NORBIT’s capital allocation strategy reflects a disciplined balance between growth investments, shareholder returns, and financial sustainability. Capital deployment is guided by three strategic pillars – acquisitions, organic investments, and dividends – all aimed at driving long-term value creation while maintaining a robust balance sheet.

A defining feature of NORBIT’s approach is its selective and value-accretive M&A activity. The acquisition of Innomar Technologie GmbH in 2024 for EUR 40.2 million exemplifies this discipline: a complementary deal that enhanced the Oceans segment’s technology base in sub-bottom profiling while strengthening the company’s position in the marine survey market. Alongside Innomar, a NOK 200 million private placement was executed to support further growth and provide financial flexibility; the issue was significantly oversubscribed, underscoring investor confidence.

Organic investments remain equally critical. R&D spending reached NOK 104.8 million in 2024, or about 6% of revenues, reflecting NORBIT’s long-term commitment to innovation and product leadership. This sustained investment has been instrumental in maintaining the company’s competitive edge in sonar, connectivity, and embedded systems.

Earnings and EPS context. NORBIT’s strong earnings performance underpins the dividend and capital-allocation choices. Reported EPS for 2024 was NOK 3.93, a 27% increase versus NOK 3.10 in 2023 and up markedly from NOK 0.48 in 2020 — a more than eightfold increase over five years. This EPS progression supports both higher absolute dividends and a conservative payout approach: the 2024 total dividend of NOK 3.00 per share (ordinary + extraordinary) implied a payout ratio of roughly 76% on 2024 EPS, while historically the company’s payout ratio has ranged between 30% and 40%. The elevated 2024 payout reflects management’s confidence in cash generation for that year, but the long-run policy remains focused on balancing reinvestment and distributions.

When it comes to shareholder returns, NORBIT has consistently applied a transparent and sustainable dividend policy. Historically, the payout ratio has ranged between 30% and 40% of annual earnings, with the 2024 total dividend of NOK 3.00 per share – including an extraordinary component – lifting the payout to 76%, a signal of management’s confidence in the company’s financial strength. Based on the average 2024 share price, this represented a dividend yield of roughly 1.5%, modest but consistent with the company’s reinvestment-led model.

Presentation Annual Report FY2024

At the same time, NORBIT’s strategy extends beyond pure cash distributions. Share-based incentive schemes and targeted equity issues support management alignment and growth funding while preserving balance sheet strength. This combination of cash and equity returns ensures both liquidity for shareholders and internal capital for expansion.

NORBIT’s capital allocation framework thus balances growth, innovation, and shareholder returns within a conservative financial posture. Debt levels remain low, liquidity strong, and investment discipline evident across R&D, acquisitions, and dividends. Together, these pillars form a resilient model designed to compound value sustainably – generating high returns on invested capital while rewarding shareholders through both distributions and long-term appreciation.

Company Culture: Explore More! Engineering Curiosity into Performance

NORBIT’s corporate culture revolves around a single guiding principle – “Explore More” – a philosophy that captures its spirit of curiosity, innovation, and continuous improvement. This mindset extends beyond product development: it defines how teams work, learn, and grow across the organization. “Explore More” underpins NORBIT’s strategy of combining technological excellence with agility – a key enabler of its success in multiple niche markets.

Core Values: Execution, Safety, and Talent Refinement

The company’s culture is anchored in three values that translate strategy into everyday behaviour:

• We deliver! A commitment to reliability and execution excellence. This value is deeply embedded across all segments and is frequently emphasized by the CEO as part of NORBIT’s identity and promise to customers.

• Safe under pressure. Reflecting operational resilience and quality under demanding conditions, especially relevant to defence and maritime applications.

• Refinement of talents. The belief that continuous learning and development are the true sources of competitiveness. NORBIT invests in attracting and nurturing skilled engineers while fostering collaboration across sites and disciplines.

These principles guide decision-making and ensure consistency between strategy, operations, and customer relationships.

People Development & Inclusion

Talent management is central to NORBIT’s operating model. The company runs internal training programs in engineering, production, and management, with strong emphasis on cross-site collaboration – particularly following acquisitions. The PIR segment plays a pivotal role in transferring best practices in R&D and manufacturing across the group, shortening time-to-market and strengthening quality standards.

NORBIT collaborates closely with NTNU in Trondheim, leveraging proximity to Norway’s leading engineering university for recruitment and research partnerships. Approximately 600 employees from 40 nationalities form a diverse talent base across Norway, Hungary, the USA, and other locations. While women remain underrepresented in technical positions, diversity and inclusion targets are clearly defined, supported by mentoring initiatives and training programs.

Employee engagement appears strong. During the 2019 IPO, many staff voluntarily participated in share purchases – a meaningful indicator of confidence and alignment with the company’s long-term vision. This sense of ownership continues through share-based incentive schemes and the open communication style promoted by management.

Sustainability & Governance: Responsibility in Practice

NORBIT views responsible business conduct as an extension of its culture. Since 2019, the company has been a participant in the UN Global Compact, committing to its principles on human rights, labour, environment, and anti-corruption. Ethical guidelines cover personal conduct, conflicts of interest, and fair competition, reinforcing the integrity of its operations.

Annual sustainability reporting discloses gender distribution, training investment, and CO₂-related initiatives. NORBIT’s goal is to integrate sustainability directly into design and production – reducing environmental footprint while ensuring product safety and reliability for clients operating in critical environments.

Culture as a Competitive Advantage

NORBIT’s culture is tightly linked to its strategic model: engineering-led, acquisition-friendly, and customer-centric. It fosters innovation while maintaining operational discipline, allowing rapid integration of acquired businesses without compromising quality. The main challenge lies in sustaining cohesion as the group expands geographically, but its track record of successful integrations and low employee turnover suggests that “Explore More” continues to work as both a rallying cry and a management system.

Business Model & Offerings: Engineering the niche

NORBIT ASA combines advanced R&D, precision manufacturing, and selective M&A to deliver tailored high-tech solutions across three business areas – Oceans, Connectivity, and PIR (Product Innovation & Realization). Each segment serves a distinct customer universe but shares the same technological backbone: embedded electronics, sensing, and signal processing. This structure provides resilience (diversified end-markets) and synergy (shared IP and production platforms), turning NORBIT into a vertically integrated niche-technology group.

Growth Strategy

NORBIT’s growth is driven by three strategic pillars:

• High-Tech Hardware Sales. The company designs and manufactures sophisticated devices in-house, such as sonar systems, underwater mapping tools, vehicle sensors, and connectivity modules. These are often integrated into complete solutions and sold to industrial and governmental clients for both civilian and defence applications.

• Integrated Solutions & Software Services. Recurring revenue streams are supported by proprietary software and data platforms bundled with NORBIT’s hardware. These include licensing, maintenance, and service agreements.

• Acquisitions & Vertical Integration. NORBIT targets small and medium-sized companies with complementary expertise in areas like IoT, electronics, and industrial systems. This approach expands the product portfolio and enhances manufacturing efficiency.

Overview of acquisitions

A review of the company’s acquisition history (see the below list) reveals a clear pattern: expanding production capacity and technical expertise, enriching the product portfolio with complementary technologies, and acquiring new capabilities to support diversification and long-term growth ambitions.

Revenue mix - Business segments

As mentioned earlier, NORBIT reports results across three segments:

Based on Annual Report 2024 values

Here is a breakdown of each segment with the related product/service group:

Let’s now briefly review NORBIT’s products/services across its various segments.

OCEANS – The deep engine of growth

The segment designs and produces advanced and ultra-compact wideband multibeam sonars (MBES), interferometric side-scan sonars (SSS), forward-looking sonars (FLS), parametric sub-bottom profilers and long-range surveillance systems for maritime safety and defence.

Flagship models include the WBMS and WINGHEAD® multibeam families – ultra-compact and high-resolution systems optimized for small survey vessels, ROVs, and autonomous surface or underwater vehicles. The WINGHEAD® B41/B44, premium deep-water MBES, are rated for depths up to 4,500 meters and is widely used by rental companies such as Norwegian Offshore Rental for deep-water pipeline inspection and seabed monitoring. The WBMS FLS (Forward-Looking Sonar) series adds a front-facing acoustic “eye,” allowing vessels and AUVs to detect underwater obstacles in real time up to depths of 6,000 meters, essential for navigation, mine countermeasures, and infrastructure protection. WINGHEAD® systems are preferred for ROVs, AUVs, and long-duration autonomous missions, delivering ultra-high resolution imagery for offshore wind surveys, cable laying, and geotechnical studies.

Recent acquisitions such as Ping DSP (2023) and Innomar (2024) – detailed earlier – extended Oceans/ capability set with interferometric side-scan sonars – which generate high-definition 3D seabed mosaics that are critical for hydrographic surveyors and offshore constructors – and sub-bottom profilers (Innomar Compact SBP, Standard SBP, Deep-36 SBP) capable of imaging sediment layers up to 150 meters below the seabed, used for offshore wind farm foundation surveys, buried pipeline identification, and archaeological research.

One example of the use of NORBIT’s sonar system is a Pipeline Depth-of-Burial (DOB) Survey conducted on natural gas pipelines crossing the Columbia River in the USA. This project aimed to determine the depth at which the pipelines were buried beneath the riverbed. The survey combined the Innomar Medium-100 parametric sub-bottom profiler, capable of penetrating sediments to detect buried infrastructure, with the NORBIT WINGHEAD® i80S Long Range multibeam sonar, which provided high-resolution bathymetric data. Together, these technologies enabled precise mapping and assessment of pipeline burial conditions.

For more details, the full case study is available on NORBIT’s website (Depth of Burial (DOB) Survey of Natural Gas Pipelines - NORBIT), and an additional technical article can be found on Hydro International (Depth of burial survey of natural gas pipelines | Hydro International).

In the defence and security domain, the GuardPoint™ surveillance system combines long-range active sonar with proprietary software to detect underwater intrusions – from divers to unmanned submersibles – protecting critical maritime infrastructure and port perimeters. On the commercial side, NORBIT’s technology powers a growing fleet of unmanned surface and underwater vehicles, including Saildrone, XOCEAN, and Maritime Robotics’ Otter USV, which integrate NORBIT’s MBES and FLS for autonomous seabed mapping and environmental monitoring

A compelling example of NORBIT’s contribution to maritime security is the deployment of its GuardPoint™ Intruder Detection Sonars for harbor protection. Designed to detect underwater threats such as divers and autonomous underwater vehicles (AUVs), the system was tested in collaboration with the US Naval Surface Warfare Center (NSWC PCD). Using the GuardPoint™ 70 and 100 sonar units, the technology successfully tracked multiple AUVs in shallow water under a Cooperative Research and Development Agreement (CRADA), showcasing its effectiveness in real-world scenarios. This project highlights NORBIT’s growing role in underwater surveillance and naval base security. A full article is available on Hydro International for further insights (NORBIT GuardPoint sonars succeed in critical US underwater detection trials | Hydro International).

Performance and financial strengths

In 2024, Oceans delivered another record year, posting NOK 744 million in revenue, up 24% year over year, and maintaining an EBIT margin of 29% - the highest among NORBIT’s divisions. Sonar systems remain the cornerstone, accounting for roughly 80% of segment sales and about 30% of group revenue. Over the first half (H1 2025), Oceans posted NOK 472.0 million in revenue (up 49 %) and sustained an EBIT margin of ~36%. These figures illustrate the pricing power and profitability of NORBIT’s compact, high-performance sonar technology, built on proprietary designs and in-house manufacturing. The segment benefits from short development cycles, tight integration between R&D and production, and a strong international footprint, with customers in more than 50 countries.

Markets and applications

Oceans’ products serve a wide and diversified customer base: survey and dredging companies, offshore energy operators, government agencies, and research institutes. Key applications include seabed mapping, underwater inspection, and construction support – areas increasingly vital for offshore wind farms and subsea data-cable installation. NORBIT’s GuardPoint surveillance sonar systems are also gaining traction in naval and critical-infrastructure protection, addressing rising geopolitical tensions and the global shift toward maritime security technology made in Europe. Meanwhile, demand from unmanned and autonomous vehicle manufacturers is opening new growth avenues, as NORBIT’s ultra-compact sonars fit perfectly within energy-efficient robotic platforms.

Growth prospects and strategic outlook

Looking ahead, NORBIT targets revenues above NOK 1.1 billion by 2027 for Oceans, supported by expected market growth across renewable energy, defence, and environmental monitoring. Management guides for 25-31% revenue growth in 2025, confirming confidence in continued momentum. Structural tailwinds in the “Blue Economy” – driven by offshore infrastructure expansion, marine conservation, and increased ocean-data demand – provide fertile ground for further scale.

Competitive advantage

NORBIT’s edge lies in its vertically integrated model – all systems are designed, manufactured, and tested in-house, ensuring quality control, speed of iteration, and scalability. This integration not only drives operating leverage but also protects proprietary know-how, creating a defensible moat built on engineering excellence. In addition, management’s substantial insider ownership aligns incentives with long-term shareholder value, reinforcing disciplined capital allocation.

Risks and downsides

The segment’s challenges are mostly operational: short order visibility (typically 2–4 weeks) and exposure to seasonal cycles in maritime activity. Yet NORBIT’s vertical integration, high margins, and global diversification help smooth volatility.

CONNECTIVITY – The digital arteries of mobility

Connectivity is NORBIT’s bridge between the physical and digital infrastructure of European mobility – a segment dedicated to intelligent wireless systems that enable identification, monitoring, and tracking of vehicles and assets. It focuses on three technological pillars: electronic vehicle identification and tolling, tachograph and fleet telematics, and smart cloud-based tracking platforms.

At the core of the portfolio is the NORBIT ITS (Intelligent Transport System) product family – encompassing Dedicated Short-Range Communication (DSRC) and GNSS-enabled On-Board Units (OBUs) used in satellite-based tolling systems across Europe. These devices ensure compliance with the EU’s Electronic Toll Service (EETS) framework, supporting seamless, cross-border payment integration for heavy goods vehicles.

One of the many NORBIT’s tolling tags

A prime example is NORBIT’s new GNSS OBU, developed for Toll4Europe under a NOK 160 million multi-year contract, marking the company’s entry into the next generation of distance-based tolling. NORBIT will supply GNSS OBUs enabling hauliers to use a single subscription and device across Europe for automatic toll payment. The system supports national road-charging schemes in Germany, Austria, and beyond – showcasing how NORBIT technology underpins Europe’s transition to a unified, satellite-driven tolling infrastructure. For more details the full case study is available at NORBIT’s website (Toll4Europe GmbH and NORBIT ASA Announce the Development of a New Innovative GNSS and DSRC Hybrid OBU Made in Norway - NORBIT)

https://www.euspa.europa.eu/sites/default/files/euspa_ruc_brochure_0.pdf

Complementing the OBUs are enforcement and DSRC modules for smart tachographs, providing remote vehicle inspection and driver compliance monitoring – a market energized by the EU regulation mandating smart tachograph upgrades by August 2025. NORBIT’s partnership with Continental Automotive exemplifies its role as an embedded technology supplier within Europe’s transport compliance ecosystem. The company provides DSRC-based wireless communication modules integrated into Continental’s intelligent digital tachographs, enabling authorities to remotely access key vehicle data such as calibration, security logs, and driving-time compliance. More details are available at NORBIT’s website (https://NORBIT.com/NORBIT-cooperates-with-continental-on-intelligent-digital-tachograph/)

NORBIT’s module for Continental’s smart tachograph

Further downstream, the iData platform (acquired 2021) powers subscription-based services under the iTrack brand. It delivers cloud-based fleet management, eToll payments, and vehicle analytics – enabling insurance firms, transport operators, and authorities to manage assets in real time. Together, NORBIT’s hardware and software ecosystem forms a vertically integrated offering covering everything from sensor-level data capture to back-end analytics.

Performance and financial strengths

Financially, Connectivity remains a cornerstone of group profitability. In 2024, the segment generated NOK 515.7 million in revenue (-5% YoY), impacted by the natural phasing of OBU deliveries, yet it maintained a strong EBIT margin of 26%, underpinned by a resilient gross margin of 65%. The revenue mix reflects the diversification of the business: NOK 194.4 million from OBUs, NOK 80.8 million from tachograph modules, and NOK 104.9 million from GNSS-based tolling units, with recurring subscription and eToll services reaching NOK 106.7 million – around 20% of the segment total, providing predictable cash flow and margin stability.

Over H1 2025, Connectivity recorded NOK 315.7 million in revenue, achieving an EBIT margin of ~31%. The margin expansion in 2025 reflects better absorption of fixed costs, stronger sales of enforcement modules and On-Board Units (OBUs), and improved product mix. These results align well with the strategic aim of migrating toward higher-value, recurring, and regulation-driven product lines.

Growth prospects and strategic outlook

Connectivity’s growth drivers are deeply structural. The European Electronic Toll Service (EETS) is reshaping the landscape of road charging and telematics, creating strong regulatory tailwinds for GNSS-capable onboard units (OBUs). Anchored by the recast Directive (EU) 2019/520, EETS promotes seamless cross-border tolling through the principle of “one contract, one OBU across borders,” driving demand for interoperable solutions. This framework is implemented via DSRC and GNSS technologies, enabling multi-country rollout and acceptance procedures that simplify logistics for fleet operators and toll service providers. The momentum is further amplified by the scaling of GNSS-based road charging systems in countries like Germany, the Czech Republic, Poland, and Denmark – especially for heavy vehicles, where satellite-based tolling offers operational and compliance advantages. As GNSS adoption accelerates, the regulatory environment is clearly aligning with market needs, reinforcing the strategic importance of EETS-compliant, GNSS-enabled OBUs across Europe.

At the same time, the digitalization of logistics and fleet operations fuels demand for telematics and subscription services. The segment’s customer base – European toll system integrators, fleet management firms, and national road authorities – anchors long-term visibility, with the top five clients accounting for 62% of revenue in 2024.

Competitive advantage

The segment’s competitive moat lies in its DSRC leadership, deep regulatory integration, and the combination of proprietary hardware, software, and data capabilities. NORBIT’s technology is embedded within the operational infrastructure of Europe’s tolling and compliance systems – a position difficult for newcomers to replicate given stringent certification, interoperability, and security requirements. Partnerships with industrial and automotive players, including Continental AG, further expand reach into smart mobility ecosystems.

Risks and downsides

The Connectivity segment operates in a highly regulated and competitive market, where performance depends largely on EU transport mandates and long-term public contracts. This creates exposure to regulatory timing and policy changes that can delay demand cycles. Competition from established tachograph and tolling manufacturers remains intense, putting pressure on pricing and innovation pace. Moreover, as connectivity standards evolve rapidly – from DSRC to GNSS and beyond – technology obsolescence risk requires continuous R&D investment and product upgrades. Finally, the business relies on a limited number of high-value clients, making contract concentration a potential vulnerability despite NORBIT’s strong positioning and long-term customer relationships.

PIR (Product Innovation & Realization) – The heartbeat of precision innovation

PIR combines NORBIT’s in-house R&D, design, and high-end electronics manufacturing (EMS & ODM) capabilities. It includes tailored R&D services – developing products, systems and embedded solutions for industrial clients – as well as contract manufacturing of electronic modules (automotive, defence, medical, subsea), with heavy industrialization and robotized, high-reliability production lines.

www.elektronikknett.no

PIR also markets proprietary / dual-brand products based on NORBIT’s intellectual property (radar, RF, embedded signal processing) often under clients’ brands or in co-branding settings.

R&D & Original Design Manufacturing (ODM)

• Tailored design & system-solutions. PIR doesn’t only build to spec — it offers product/system innovation: hardware + embedded software + signal/radar/RF processing designs for demanding industrial customers. These are often highly customized solutions, addressing markets like defence, subsea, medical, industrial automation.

• Proprietary technology product lines. Internally developed IP: special instrumentation involving radar, RF, embedded signal processing, which are sold under client brand or dual brand agreements.

• Rapid prototyping & pilot runs. The R&D department includes capabilities for prototyping (electronics, mechanical parts, both plastic and metal) and small-run versions, bridging from concept to full industrialization – crucial for clients wanting to test before large-scale production.

Contract Manufacturing / EMS (Electronic Manufacturing Services)

• In-house factories. NORBIT owns multiple manufacturing sites – notably in Røros (automotive focus), Selbu (defence, medical, subsea), and Kabelpartner (subsea & defence). These factories are highly robotized and optimized for reliability, certifications, and stringent quality requirements.

www.fjell-ljom.no

Performance and financial strengths

PIR has shown accelerating growth: in 2023, revenues were NOK 412 million (slightly down vs prior year in headline number), but adjusted for unusual material cost effects, underlying revenue grew 16% driven by contract manufacturing (which accounted for roughly 77% of PIR revenues). In Q1 2025, PIR delivered NOK 160.6 million, up 11% year-on-year, with an EBIT margin 14%. In Q2 2025, growth exploded: revenues NOK 293.1 million, up 118% vs Q2 2024, largely due to strong demand from defence & security; EBIT margin rose to 20%. Overall, NORBIT has raised full-year guidance for 2025: PIR is expected to contribute strongly toward total revenues targets.

Growth Opportunities

In recent quarters, PIR has demonstrated significant growth momentum reflecting strong inflows from defence and security contracts. About 20% of PIR’s revenues now originate from defence clients – a direct result of increasing European demand for localized, high-reliability electronics production. Broader market forces such as supply-chain diversification away from Asia (reshoring) and growing demand for advanced automation systems are further expanding PIR’s addressable opportunities, positioning NORBIT as a key enabler of Europe’s re-industrialization (also thanks to PIR’s factories certifications and capabilities for medical applications).

Competitive advantage

NORBIT’s competitive edge within PIR stems from its vertically integrated production capabilities and its ability to blend R&D with flexible manufacturing. The segment benefits from long-term partnerships, often spanning multiple product generations, which stabilize demand and reduce acquisition costs. Furthermore, fully robotized lines enhance scalability and quality consistency, particularly in defence and medical electronics where precision and reliability are paramount. Its practice of focusing on a few key customers allows deeper technical collaboration and provides predictable revenue streams despite market cyclicality.

Risks and downsides

Nonetheless, PIR faces structural challenges typical of contract manufacturing: high competition, dependence on large customers, and exposure to cyclic industrial demand patterns. While defence provides a near-term tailwind, sectors like automotive may remain subdued amid platform transitions and cost pressures. Sustained growth will depend on NORBIT’s ability to secure new multi-year programmes and continue converting its R&D strength into proprietary designs with long-term customer lock-ins.

Summary

NORBIT’s three-segment model forms a self-reinforcing system. Oceans provides technological differentiation, Connectivity delivers regulatory-anchored recurring revenues, and PIR ensures vertical integration and manufacturing excellence. Together they generate balanced growth, high margins, and strong cash conversion – the hallmarks of an industrial-tech compounder.

Looking under the hood, NORBIT’S model reveals itself through a few critical lenses, each of which highlights how the company creates and defends value in its niche market.

🔎 Recurring revenues

NORBIT’s business is not a pure recurring-revenue model like SaaS. However, recurring elements exist. Within the Connectivity segment, the only explicitly quantified recurring revenue stream is from “subscription and e-toll” services, which totalled NOK 106.7 million in 2024 (up from NOK 92.4 million in 2023) in 2024. This represents about 21% of Connectivity’s revenues and roughly 6% of NORBIT’s total revenues for the year. These revenues remained relatively flat at around NOK 54.5 million for H1 2025 accounting for about 4.5% of total H1 revenues. This slight relative decline as a percentage of total revenues reflects stronger growth in non-recurring areas like defence contracts in PIR and sonar sales in Oceans. Oceans and PIR revenues appear largely project-based or product-driven, with limited recurring components mentioned.

Overall, recurring revenues are a stable but minor contributor to NORBIT’s financials. They provide some predictability but are not a dominant driver of the company’s growth leaving NORBIT more exposed to cyclical or one-off demand.

🔎 Cyclicality and resilience

Revenue shows moderate cyclicality, tempered by its diversified segment structure and strategic focus on sustainable, technology-driven applications. Through its three segments NORBIT is exposed to different market drivers and customer bases, reducing reliance on any single industry and enhancing resilience against economic downturns. However, global exposure (about 80% of revenues outside Norway) introduces risks from macroeconomic trends, supply chain disruptions, currency fluctuations, and geopolitical tensions, which could amplify volatility during recessions.

Oceans segment shows higher cyclicality due to its reliance on maritime exploration budget, which can fluctuate with global trade, energy prices, and infrastructure investments. Market drivers include seabed mapping, offshore wind (driven by renewable energy targets like EU/UK/US goals for >140 GW by 2030), and security solutions amid geopolitical unrest. It experiences seasonality (e.g., weather-dependent surveying) and low order visibility, making revenues more volatile and sensitive to short-term economic shifts.

Connectivity is less affected by cyclicality, as it benefits from regulatory-driven demand and recurring elements. Key drivers are digital transformation, green mobility, and EU regulations (e.g., Mobility Package 1 requiring tachograph upgrades by 2025/2026), supporting products like On-Board Units (OBUs) and satellite-based tolling. Medium- to long-term frame agreements (e.g., a NOK 160 million GNSS contract for 2025) provide revenue predictability, with subscription and e-toll services acting as a (still small) stabilizing buffer. While hardware sales saw a 5% year-over-year dip in 2024 due to order rescheduling, the segment’s essential role in transportation (e.g., 80% market share in European truck tachographs) makes it more defensive against economic cycles.

PIR cyclicality is somewhat moderate, influenced by industrial and automotive trends, but offset by growing defence/security (20% of segment revenues in 2024, up from 6% in 2023) and pharma exposure which can be counter-cyclical during geopolitical tensions. Customer concentration (top 5 clients = 59% of revenues) adds some volatility risk, but R&D services and regional manufacturing focus enhance stability.

🔎 Profitability profile

NORBIT ASA’s profitability profile reflects its hybrid identity – part industrial manufacturer, part technology company. Its financials reveal an operation that consistently extracts strong margins from highly engineered, niche products rather than chasing scale at the expense of quality.

Over the last five years, NORBIT has steadily expanded both gross and operating margins, even through supply-chain disruptions and input cost inflation. Gross profit margin has typically hovered between 55-60%, a strong signal that NORBIT’s hardware and software bundles carry pricing power and differentiation in their end markets. This figure places it well above traditional industrial peers, which often operate below 40%, and closer to high-value tech manufacturers.

Profitability varies by segment with Oceans that tends to deliver the highest margins (>70%) overall and PIR that yields mid-level margins (30-40% gross) due to its project-based nature.

Operating margins have ranged between 17-22%, with incremental gains as the company scaled volumes and improved efficiency across its Oceans and Connectivity segments. NORBIT’s asset-light assembly model, where core electronics and IP are retained in-house while less critical production is outsourced, enables solid operating leverage.

Strong gross profit margin and Operating expenses growing slower than revenues are generating positive operating leverage and boosting NORBIT’s net profit. This highlights an efficient and scalable cost structure.

Beyond accounting margins, cash flow tells the same story of efficiency. Free Cash Flow (FCF) conversion from EBITDA about 60%, healthy for a hardware-plus-services business. Working capital discipline – particularly in inventory turnover and receivables – underpins this stability.

Presentation Annual Report FY2024

Return metrics further underscore the quality of earnings: ROIC (Return on Invested Capital) has more than doubled from 2020 to 2024 and is now trending towards 20%, well above the cost of capital, showing that incremental capital generates strong returns. Management’s consistent reinvestment in high-return niche areas, rather than broad diversification, supports this.

Overall, NORBIT’s profitability profile mirrors a company that has achieved industrial precision with tech margins – a rare combination among small-cap engineering firms.

Strategy and Moat: From Niche to Notable

As a niche and mission critical technology company, NORBIT’s main goal is to strengthen its current position and expand into new profitable technological niches that fit their business model.

NORBIT’s strategic roadmap, as presented in investor materials, centres on three pillars:

1. Organic product innovation – develop next-gen sonar and connectivity products leveraging PIR R&D and cross-segment engineering. The main strategy remains to broaden the product offering, NORBIT is tailoring and adding features to its technology to address and open larger markets. Strategic investments and development focusing on sonar innovation (e.g., Winghead, VBMS X, GuardPoint) and targeting security, offshore wind, and autonomous underwater vehicles.

2. M&A to extend product & market reach – acquire niche technology firms to quickly gain complementary capabilities, customers and geographic presence (e.g., Innomar, Ping DSP, and Seahorse Geomatics). Integration and cross-sell are central to value creation.

3. Operational scale and margin improvement – consolidate and expand manufacturing to meet existing and future demand (e.g., investments in robotic assembly lines SMT capacity in Røros to nearly doubling the capacity), capture higher margins through product mix and service growth and focus on working capital efficiency and Return on Capital Employed (ROCE).

On top of this, I spontaneously see a couple of other strategic drivers that are already showing their first results:

1. Broadening the customer base in the more concentrated segment and moving from tender-based sales to more direct B2B relationships with blue-chip clients – key strategic shifts in Connectivity, providing more predictable, high-value revenue streams.

2. Moving to increase recurring revenue via service offerings and software features bundled with hardware.

NORBIT’S vision for the future is enclosed in their motto “from niche to notable”. This quote from the CEO during a recent earning call gives a nice insight into this vision and NORBIT strategic intent:

“As we accumulate references and as we grow, we also accumulate skills, enabling NORBIT to take on larger opportunities, which we express as going from niche to notable. We will remain diversified. And in addition to focusing on broadening the product offering, we will focus on broadening customer base.”

“So, we’ve had as a clear strategy tailoring technology in carefully selected niches… So, it’s a question of choosing the right opportunities… We’re not looking for opportunities that really could quadruple NORBIT the next half year. Some opportunities are too big. They’re meant for Google and Microsoft and companies like that. But as we grow, what is the right level of scalability in the niche for NORBIT also will grow. And what we see is that maybe we’re at a scale now where you could see that some opportunities, they are of a size that it’s not worth calling it a niche.”

Competitive Advantage / Moat analysis

NORBIT ASA’s competitive edge rests on a diversified yet focused portfolio that combines proprietary technology, regulatory integration, and long-term client partnerships across its three business segments. In Oceans, the company has carved out a niche leadership in high-performance, ultra-compact sonar systems, supported by strong IP and premium pricing power. In Connectivity, NORBIT benefits from structural EU regulatory tailwinds and sticky long-term contracts with blue-chip clients in tolling and tachograph systems. Meanwhile, PIR leverages the company’s deep R&D and manufacturing expertise to build stable relationships in defence, automotive, and industrial electronics. Taken together, NORBIT’s mix of specialized products, embedded regulatory compliance, and selective customer integration provides a defensible moat and positions the company to benefit from long-term trends in maritime security, offshore infrastructure, transport digitalization, and defence modernization.

Let’s now practically assess NORBIT’s moat by providing a score (from 1 to 5) to each of the classic moat types.

1. Switching costs – 3 (moderate)

NORBIT’s products are often deeply integrated into their customers’ operational workflows, creating moderate switching costs. For example, the On-Board Units in the Connectivity segment are part of large-scale tolling systems, and sonar systems in the Oceans segment are integrated with vessels and data processing software. Changing suppliers would involve significant logistical challenges, re-training, and potential downtime. However, as it operates in B2B markets, large customers may still switch for significant cost or technology advantages. Additionally, switching costs vary by application, with some products facing lower barriers than others.

2. Cost advantage – 2/3 (low to moderate)

NORBIT maintains some cost advantages through operational efficiency and specialized manufacturing capabilities. In specialized applications, customers tend to prioritize performance and reliability over price, making cost competitiveness less critical than in commodity industries. However, large incumbents and low-cost manufacturers can compete on price for certain components. Cost advantage exists but definitely is not dominant.

3. Regulatory barriers – 2/3 (low to moderate)

Serving defence and certain maritime markets requires regulatory approvals, certifications and compliance which raise the entry bar. In the Oceans segment, technology for defence and maritime surveillance is subject to stringent quality and security standards but the strongest moat lays in the Connectivity segment. EETS (European Electronic Toll Service) is not just an acronym, it’s a structural standardization of toll collection that favours sophisticated, interoperable OBUs and accredited providers. The “2019 recast” of EETS regulation and ongoing national transitions toward GNSS‑based tolling expand the pool of fleets needing modern OBUs that work seamlessly across borders. Despite these regulatory requirements help incumbents like NORBIT to build up some advantages, it’s important to remember that these barriers are not insurmountable for well-financed competitors and do not create permanent exclusivity.

4. Brand power – 3 (moderate)

NORBIT is a respected brand in niche markets, but it is not a mass consumer brand. In professional markets, reputation for reliability and support matters and NORBIT has built credibility. Brand is valuable but limited to industry audiences and customers primarily evaluate technical capabilities and performance rather than brand prestige.

5. Intellectual property (IP) – 4 (strong)

NORBIT’s business is founded on proprietary technology and deep R&D capabilities. Strategic acquisitions have expanded the IP portfolio with complementary technologies. The company invests approximately 5-6% of its annual revenue in R&D and holds the IP for its core technologies, such as the ultra-compact wideband multibeam sonars. This technological edge allows it to create tailored solutions that competitors using off-the-shelf components cannot easily replicate.

6. Network effects – 1 (none)

There are limited direct network effects. While some connectivity applications benefit from network density, most products provide value independently. The company’s strategy focuses more on direct customer value than network-driven adoption.

Porter’s five forces analysis

Growth ambitions and Financials

NORBIT has clear ambitions for growth and management communicates short-term objectives with clarity and transparency. They’ve set ambitious yet achievable performance targets, aiming for revenue growth to stabilize at a 16% CAGR effectively doubling their revenue within five years by capitalizing on strong market tailwinds.

Presentation Annual Report FY2024

Growth, yes! But not at any cost. NORBIT plans to continue investing and expanding while maintaining its current EBIT margin of 20% and keeping financial leverage within the limits defined by its internal policy.

Presentation Annual Report FY2024

The company has adopted a disciplined and strategic approach to debt management, aligning its financial structure with long-term resilience and flexibility. This prudent financial strategy enables NORBIT to support ongoing operations and investments without excessive reliance on debt, thereby minimizing financial risk.

Key indicators reflect this conservative stance. The Debt/Equity ratio of 0.47 signals a balanced capital structure, while an Interest Coverage Ratio of 9.14 highlights the company’s strong ability to meet interest obligations from operating earnings. Liquidity remains solid, with a Current Ratio of 1.73 and a Cash Flow to Debt Ratio of 0.92, indicating that operating cash flow nearly covers total debt. In 2024, NORBIT reported net interest-bearing debt (NIBD) of NOK 254 million, with a net debt to EBITDA ratio of 0.7x, comfortably within healthy limits and reinforcing the company’s sound financial position.

Presentation Annual Report FY2024

This position was temporarily impacted by the acquisition of Innomar GmbH, completed in July 2024 for an enterprise value of EUR 40.5 million, of which EUR 35.4 million was settled in cash and EUR 4.8 million in shares. To fund the transaction and associated working capital needs, NORBIT entered into a EUR 38 million loan facility during Q3 2024. From an investor’s standpoint, the temporary uptick in debt should be viewed in the context of deliberate reinforcement of the balance sheet to execute accretive M&A and to scale the business—rather than as a sign of distress. In fact, the strong FCF, improving margins and debt still at low levels relative to EBITDA all reinforce the quality and resilience of the business model.

In parallel, the solidity of NORBIT’s Free Cash Flow and the progression of its FCF margin confirm the company’s ability to translate accounting profitability into tangible liquidity – the ultimate litmus test of business quality. Between 2022 and 2023, the group’s cash generation experienced a dramatic transformation. Operating Cash Flow surged from NOK 85.7 million to NOK 430.3 million, while implied Free Cash Flow turned from roughly NOK -30 million to NOK +286 million in 2024.

Finmode.app

This turnaround reflects not only the exceptional increase in operating profitability – with EBITDA up 66% and EBIT margin expanding by 600 basis points – but also a masterful optimization of working capital.

The inventory swing alone released over NOK 259 million in cash, as supply chains normalized and NORBIT successfully reduced excess safety stock accumulated during the 2022 component shortage. Receivables remained stable, payables increased slightly, and accrued liabilities provided an additional positive contribution, all supporting a sharp improvement in cash conversion. Behind this stands an operational structure characterized by scalability and efficiency: a 30% increase in revenues drove a 66% rise in EBITDA, proving the strong operating leverage of NORBIT’s model. The particularly rapid expansion of the high-margin Connectivity segment (up 75%) further enhanced cash generation.

This combination of expanding margins, disciplined capital allocation, and robust cash generation reinforces NORBIT’s financial flexibility and underlines the sustainability of its competitive advantage. From an investor’s perspective, this evolution reveals a business that not only grows but does so on its own cash flows – a hallmark of quality that Warren Buffett would define as “a company able to internally fund its growth while strengthening its balance sheet.”

Financial model & Valuation

At today’s levels, NORBIT trades on a trailing P/E ~30 and a forward P/E ~21 depending on the data source and timing – above its five-year average but not outlandish for a business compounding cash flows at a brisk clip.

On a cash lens, P/OCF hovers around the mid-20s and P/FCF has nearly doubled from end of 2024 (21.5) to last Q2 data (41.3). FCF yield is about 2-2,5%. That’s consistent with the strong rerating the shares enjoyed into 2025.

The market is paying up for quality execution and visibility. That’s because nothing is “broken” in the numbers, but there is just little cushion if growth normalizes sooner than hoped.

What’s Gone Right (And Why the Market Is Paying Up)

• Operations are humming. Q2-2025 set fresh records: revenue NOK 684m (+63% YoY), EBIT margin about 25%, and EPS up to NOK 2.06. Management raised FY-2025 guidance to NOK 2.5-2.6 billion revenue with ~25% EBIT margin. Segmentally, Oceans +22%, Connectivity +67%, PIR +118% YoY – a powerful breadth of growth.

• Cash generation has inflected. Full-year 2024 FCF of NOK 286 million and continuing TTM strength into mid-2025 validate the investment case that NORBIT is scaling with cash conversion.

• The strategy is landing. The Innomar acquisition broadens Oceans into sub-bottom profiling (complementary tech, different buyer budgets), with the deal closed in July 2024 and integration continuing under the Innomar brand.

• End-market momentum is real.

  • Defence/security: From GuardPoint sonar orders to U.S. testing with NSWC Panama City (NORBIT: Successful U.S. Testing Of Guardpoint Intruder), NORBIT is increasingly relevant where budgets are expanding. Europe’s defence outlays are structurally up; SIPRI pegs 2024 global military spend at a new high with Europe +17% (Unprecedented rise in global military expenditure as European and Middle East spending surges | SIPRI), and EU/EDA data point to €343bn in 2024 and ~€381bn in 2025 (2025-eda_defencedata_web.pdf). Tailwind, meet product-market fit.

  • Tolling & connectivity: NORBIT’s ITS/DSRC and EETS-compliant offerings stay plugged into a multi-year digitalization of heavy transport and enforcement.

  • Subsea infrastructure: Oceans tools (multibeam, sub-bottom) ride survey demand across renewables and intercontinental cable routes – an area growing at 9-12%+ CAGR this decade (Submarine Optical Fiber Cable Market Trends 2025 to 2035)

DCF, Reverse DCF & What’s Priced In

Projecting off the last 24 months is very hard – the cash flow step-change distorts simple trend fits. Full-year 2024 FCF ~NOK 286 million and a rising 2025 run-rate set a higher base, but the critical question is durability of that run-rate versus contract timing and segment mix.

DCF framing (10% discount rate, 2.5% terminal) outputs for intrinsic value calculation:

• Normal (15% FCF CAGR): NOK ~162.5 (a 9% overvaluation at todays prices)

• Bear (10%): NOK ~115 (a 35% overvaluation at todays price)

• Bull (20%): NOK ~227 (a 27% undervaluation at todays prices)

Reverse DCF implies the market is underwriting a 16.4% FCF yearly growth off the latest base – potentially reasonable for the next 1-2 years, maybe demanding beyond that. The math squares with a ~2-2.5% FCF yield against a 10% hurdle, which indeed requires sustained compounding to justify today’s price.

The table below updates the Reverse DCF using the most recent FCF data (Q2 2025), and it continues to indicate that the current valuation remains demanding.

Why I Still Call the Setup “Stretched and Fragile”

• Contract concentration & timing. Visibility is great today, especially in PIR and Connectivity, but it’s contract-driven. Big awards in defence/security manufacturing (PIR) are fantastic proof points – NOK 260m (Mar-2025) plus fresh NOK 120m (Oct-2025) orders – but they can cluster and taper quarter-to-quarter. The pipeline is strong; the cadence is uncertain.

• Mix can swing margins. Q2-2025 gross margin dipped vs. Q2-2024 due to segment mix (PIR share up; Connectivity margin down), even as EBIT margin held a solid ~25% on operating leverage. If the mix shifts unfavourably for a couple of quarters, earnings power looks different than the top-line suggests.

• Macro is a tailwind – until it isn’t. Europe’s defence spending impulse looks structural (SIPRI/EDA), and the EU is even designing SAFE loans to accelerate procurement. But equities have priced part of that up-and-to-the-right narrative already; any procurement delays or politics can wobble near-term prints.

• Competition & product cycles. Oceans is levered to innovation (e.g., new sonar platforms and Innomar sub-bottom lines). That’s a plus – but it also means maintaining the edge via R&D cycles and capital allocation discipline. The 2024 annual report shows NORBIT scaling R&D to keep the flywheel spinning.

Strategic Lens: Why the Long-Term Story Still Excites Me

• Oceans sits at the intersection of blue-economy capex (offshore wind, ports), security, and subsea cables. The latter is experiencing high single- to low-double-digit CAGR as hyperscalers and carriers lay capacity; better survey fidelity and DOB tools remain mission-critical. Innomar strengthens the product stack exactly where budgets are rising.

• Connectivity taps DSRC/EETS tolling and compliance layers for heavy transport – a classic “regulated rails” dynamic that rewards trusted vendors. NORBIT’s long operating history and certification muscle are moat-like in practice.

• Security/Defence creates optionality: U.S. testing of GuardPoint and international sonar orders validate capability and open doors for follow-on systems across ports, critical infrastructure, and naval use.

“Missed the Train”? Maybe. But Missed Trains Often Stop Again.

I share the feeling: sub-NOK 100 in 2024 was the fat pitch. If the stock revisits more attractive territory, the key will be why:

• If it’s sentiment (risk-off, small-cap wobble), that’s one thing.

• If it’s fundamental (order pushouts, mix headwinds, regulatory hiccups), we need to reassess duration and earnings power.

NORBIT is a high-quality operator executing a clear plan, in markets that matter more each year. The premium is understandable; the margin of safety is probably not. I’m content to own the watchlist here: let multiples compress or visibility extend – preferably both.

Until then, I’ll keep updating my model with each print and watch for:

• FY-2025 delivery vs. raised guide (NOK 2.5-2.6 billion at ~25% EBIT margin).

• Order cadence in PIR/Defense and Oceans sonar traction (GuardPoint/intruder detection, multibeam upgrades).

• Connectivity margins and regulatory tea leaves in EU tolling.

If we get a pullback towards a 40% margin of safety versus the Bull-case DCF (NOK ~227), which makes a price of NOK 136.2 (my buy-below price) and without a fundamental crack, I’d likely scale in. For now, although stock price is not far from the base case, I will stay patient. That’s the discipline I owe future me.

Customer base: Who Buys, Why It Matters, and What to Watch

NORBIT’s customer base consists of industrial, commercial, and governmental entities across the globe. The company operates on a business-to-business (B2B) model, with each business segment addressing distinct customer profiles and needs.

From 2024 Annual report: “Today, more than 80 per cent of our revenues come from exports to around 60 countries, while the share of revenues from sale of technology based on our own intellectual property is close to 75 per cent.”

NORBIT sells to three distinct (but converging) buyer universes: (1) hydrographic surveyors, energy & maritime infrastructure, and security agencies that need multibeam sonar and underwater surveillance (Oceans); (2) tolling operators/EETS providers, fleet owners and insurers that need connected devices and telematics (Connectivity); and (3) European defence & industrial OEMs that need “Made in Europe” contract manufacturing and product realization (PIR).

Let’s explore this further.

Oceans

Hydrographic survey contractors and hydrographic offices mapping harbours, channels, and coastal zones (e.g., case studies on pipeline depth-of-burial, bridge pillar, wreck/port surveys).

Offshore energy & infrastructure (offshore wind, cables/pipelines, dredging & port construction) using high-resolution bathymetry and monitoring systems. Rental houses (e.g., Ashtead Technology; James Fisher Subtech) make NORBIT kits standard options for service firms an underappreciated demand amplifier.

Ashtead Technology’s website promoting NORBIT’s sonar for rent

USV (Unmanned Surface Vessels)/AUV (Autonomous Underwater Vehicle) platform operators (Saildrone, XOCEAN, Maritime Robotics) integrating WINGHEAD/WBMS on unmanned fleets. Structurally expanding the addressable fleet of sensors.

XOCEAN’s USV equipped with NORBIT’s iWBMS

Defence, coast guards & port authorities for obstacle avoidance, MCM (Mine Countermeasures) roles and port/critical asset surveillance. Management highlights rising demand for GuardPoint.

The procurement of advanced sonar systems is increasingly shaped by a dual-track model: capital expenditures (Capex) from survey firms and public agencies drive foundational investments, while operational expenditures (Opex) via rental models enable faster deployment and smoother adoption cycles. This rental approach not only mitigates budgetary constraints but also facilitates early trials and broader market penetration.

A key growth vector lies in the integration of sonar technologies into unmanned surface vehicles (USVs) and remotely operated vehicles (ROVs), which fosters long-term platform commitments and retrofit opportunities as new sonar generations enter the market. The timing is critical: with expanding port infrastructure, rising investments in coastal and subsea assets, and increasing maritime security budgets across Europe, demand is surging. NORBIT’s 2024 Annual Report underscores this momentum, citing “increasing demand for underwater surveillance technology,” a trend that reflects both geopolitical shifts and the strategic importance of subsea domain awareness.

Connectivity

EETS providers & tolling operators (such as Toll4Europe) adopting advanced hybrid GNSS+DSRC OBUs made in Norway or DSRC tolling customer-branded solutions.

Mobility Service Providers & Fleet Operators integrating OBUs into fleet management for heavy trucks and buses, enabling toll settlement and telematics in one device. One example is the deal with DKV to step into the Italian road tolling market for trucks (NORBIT steps into the Italian road tolling market together with DKV - NORBIT)

NORBIT’s tolling module for DKV

Insurance & Industrial Companies. NORBIT’s Smart Data sub-segment (through the acquisition of iData in 2021) serves insurance companies and industrial fleets with telematics, fuel control, and vehicle monitoring.

OEMs & System Integrators. NORBIT’s DSRC modules and hybrid OBUs can be embedded into OEM (truck and bus manufacturers) dashboards or integrated by system integrators for smart tachographs, GNSS enforcement, and multi-application OBEs (On-Board Equipment).

IoT & Asset Tracking Clients use NORBIT’s connected solutions (IoT/BLE devices) for non-vehicle asset (containers, machinery, tools) monitoring in logistics, construction, and industrial verticals.

NORBIT’s Connectivity segment serves multiple buyer groups with distinct procurement paths. EETS providers and tolling operators (e.g., Toll4Europe, DKV) typically run long-cycle tenders or framework agreements for GNSS+DSRC OBUs, requiring certification and phased deliveries. Fleet operators and mobility service providers purchase OBUs bundled with toll settlement or telematics, often via partners like DKV, while iData offers SaaS subscriptions for fleet tracking and fuel control, creating recurring revenue. OEMs and system integrators source DSRC modules for smart tachographs under multi-year supply deals aligned with vehicle platform timelines. Finally, IoT and asset tracking clients adopt NORBIT’s BLE and telematics solutions through direct subscriptions or industrial resellers, usually after short pilot phases.

PIR

Defence & security OEMs have emerged as the fastest-growing group, driven by geopolitical imperatives for European manufacturing sovereignty and IP protection. Large spot orders (the last ones in March and May 2025 of about NOK 260 and 125 million respectively) underscore this momentum. Unfortunately, in case of defence and security client and scope of supply are undisclosed. (NORBIT - Awarded NOK 260 million orders)

Automotive OEMs and Tier-1 suppliers remain a cornerstone, providing a stable base load through long-term programmes for vehicle electronics, supported by IATF 16949 certification. NORBIT is gradually reducing the focus on automotive given the current challenges the industry is facing.

Medical/pharma equipment manufacturers leverage NORBIT’s ISO 13485-certified facilities for medtech devices and pharma automation systems, a segment benefiting from healthcare digitization

Industrial/tech firms nergy, maritime, and automation rely on PIR for rapid prototyping and scalable production. Together, these clusters balance recurring demand with high-growth opportunities, positioning PIR as both a resilience play and a strategic growth engine.

The procurement of EMS and product realization services in PIR follows a dual-track dynamic: long-term framework agreements from automotive and medtech customers provide a stable base load, while project-driven contracts – notably in defence and security – inject high-growth volatility. Automotive programmes typically involve multi-year commitments tied to vehicle platforms, whereas defence and industrial tech projects demand rapid scale-up and localized production, often under strict compliance and IP security requirements. This shift reflects a structural trend: geopolitical pressures and nearshoring strategies are elevating European manufacturing sovereignty as a procurement priority, while healthcare digitalization sustains medtech demand. NORBIT’s 2024 Annual Report underscores this pivot, noting that defence and security now account for a growing share of PIR revenues, signalling a transition from automotive-centric stability toward a balanced model of resilience and strategic growth.

Customer Concentration and Diversification.

NORBIT has historically had some customer concentration, particularly in the Connectivity segment, which relied on long-term contracts with a few major clients. However, a key part of the company’s recent strategy has been to broaden its customer base to reduce this dependency.

NORBIT maintains geographic diversification across Europe, North America, and other international markets. This diversification reduces exposure to regional economic conditions while enabling proximity to key customer markets. While Oceans segment is truly globalized, Connectivity and PIR are pretty much Europe-only.

What I’m watching next

1. GNSS OBU commercialization & EETS traction (2025-2026): Execution on Toll4Europe deliveries and follow-on wins as more toll domains formalize GNSS - and as hybrid DSRC/GNSS becomes a de‑facto specification in multi-country fleets. Monitor additional EETS accreditations and OBU upgrades (4G displays, OTA feature sets).

2. Defence/security intensity in PIR: The 2024-2025 step-up looks structural and linked to increase in European military spend outlook; look for multi‑year frameworks vs. spot orders, potential capex expansions at Selbu/Røros, and visibility beyond H2’25 deliveries.

3. Oceans cycle durability & USV penetration: Watch for continued adoption of WBMS X and WINGHEAD i80S on USVs, and any broadening of GuardPoint backlog (a proxy for port/critical infrastructure security budgets).

NORBIT’s customer base is “wider than it looks”: from survey skippers to EETS platforms to defence OEMs - diversification that cushions cycles while letting each segment ride its own megatrend (blue economy, connected mobility, European sovereignty in defence/industry). 2024 delivery and 2025 momentum validate that strategy; now, execution on GNSS OBUs and scaling PIR defence programmes will be the needle‑movers for the next leg.

Industry Context: David Among Goliaths

NORBIT operates across multiple specialized technology markets rather than within a single defined industry, creating both opportunities and complexities in competitive analysis. The company’s three business segments address distinct market structures and competitive environments, from maritime technology to transportation monitoring and specialized manufacturing.

NORBIT’s genius lies not in fighting giants head-on, but in carving out defensible positions across the different segments.

Market Structure

The markets NORBIT serves are generally not monopolies but can be described as “oligopolistic or fragmented niches”.

In the maritime technology space (Oceans), the market is comprised of several specialized players. NORBIT competes by offering highly integrated, compact, and high-performance sonar systems. Its acquisition of Innomar further solidifies its position in the sub-bottom profiler niche.

In the automotive connectivity market (Connectivity), NORBIT holds a leading position as an independent supplier of DSRC-based solutions for specific applications like truck tolling and tachographs. This is a niche within the much larger automotive electronics industry.

The contract manufacturing industry (PIR) is highly fragmented. NORBIT differentiates itself by offering high-complexity, specialized manufacturing in Europe, combined with R&D services, which is attractive to customers seeking quality and supply chain security.

Let’s now dissect each battlefield and the players NORBIT faces.

Competitive Landscape

Oceans

The “whales” in this ocean are the system integrators and full-suite providers: Kongsberg Discovery, Teledyne Marine (with sub-brands like RESON and BlueView), L3Harris, Saab.

These companies supply large, integrated sonar systems, naval ASW (Anti-Submarine Warfare) suites and OEM equipment for newbuilds and defence programmes. They have deep customer relationships, aftermarket service businesses and scale advantages in large defence contracts. Kongsberg explicitly reports a high share of maritime aftermarket revenue, an advantage when defending installed base business.

NORBIT does not only compete with giants but also with other niche specialized players: R2Sonic, Kraken Robotics, Imagenex.

These are smaller product-focused companies that compete on price/performance for commercial survey customers, AUVs, and niche defence tasks. They are more agile, often focused on a limited number of sonar product lines or sensors.

Note: L3Harris, Saab, and Raytheon focus primarily on strategic naval defence – outside NORBIT’s core commercial and light-defence sweet spot, therefore I will opt them out.

Sizing the Players (Comparable segments only)

(Values in USD millions; margins based on latest available data)

Key Takeaways:

• Teledyne covers nearly every sonar type via its sub-brands (RESON, BlueView, Benthos, Odom, Gavia). It also prevails for its unmatched distribution and integration capabilities.

• Kongsberg dominates system integration and large-scale sonar suites and has full integration into its AUVs.

• Kraken leads in SAS and autonomous payloads with strong defence traction.

• R2Sonic is the benchmark for portable multibeam echosounders and leads in OEM relationships and global brand.

• Imagenex focuses on low-cost imaging and profiling sonars for shallow-water ROV/AUV and research.

NORBIT’s Edge:

• Compact high-performance systems: Easier deployment for small survey vessels.

• Cost efficiency + simplicity: Attractive for commercial operators.

• Integrated interferometric solutions: Strong in MBES and Side Scan Sonars for ports and infrastructure.

• Recurring service opportunities: Broader industrial customer base.

With its technical reliability and innovation capacity, NORBIT was also able to gain a strong position in North America. Over the last decade, NORBIT captured USD 8 million in U.S. federal spend (Data source: https://www.usaspending.gov), outpacing R2Sonic and dwarfing Kraken Robotics and Imagenex. This is remarkable for a foreign player competing against entrenched U.S. brands!

Data source: https://www.usaspending.gov

NORBIT wins by playing small and smart: focusing on compact, integrated sonar solutions for commercial and security markets, while giants dominate heavy defence and system integration. Its agility, cost efficiency, and U.S. traction make it a credible challenger in a fragmented yet strategically vital ocean tech landscape.

NORBIT is not trying to be Kongsberg or Teledyne. Instead, it thrives in the “lightweight, high-precision” niche – where agility, integration, and affordability matter more than scale.

Connectivity

In the age of digital infrastructure, roads are no longer just asphalt and signage – they’re becoming intelligent networks. From GNSS-based tolling to IoT-enabled asset tracking, the transformation of transportation systems is accelerating across Europe and beyond. At the heart of this evolution lies NORBIT’s Connectivity arm that has quietly become one of its most valuable growth engines: high-margin on-board units (OBUs), DSRC modules for tachograph enforcement, and tailored telematics for fleet & mobility customers.

What differentiates NORBIT is its positioning: it doesn’t try to build entire traffic systems but focuses on the high-value, scalable components – the certified, compliant “intelligence” that goes into vehicles and enforcement networks.

The Connectivity ecosystem spans multiple layers of the value chain – from module OEMs to ITS integrators and automotive Tier-1 suppliers. Each group competes (or collaborates) with NORBIT in different ways.

(a) Module giants – the component layer

Quectel (China) and u-blox (Switzerland) dominate the global GNSS and cellular module market, with massive economies of scale and access to the latest chipsets.

• Quectel: USD 2.5 billion revenue, 17% gross margin, 5% EBITDA margin; excels in price and supply chain control.

• u-blox: USD 290 million revenue, 46% gross margin, but negative EBIT due to R&D overinvestment.

These companies sell to NORBIT rather than compete directly – NORBIT integrates their modules into certified, vehicle-grade OBUs, adding firmware, DSRC interface logic, and software layers for fleet data and enforcement.

Strategic takeaway: NORBIT competes up the value chain, turning commodity modules into regulatory-grade systems.

(b) European ITS specialists – the system integrators

Intelligent Transport System specialists in Europe (the market NORBIT is primarily competing in Connectivity) are system integrators and service providers for tolling, enforcement, traffic management and smart mobility platforms. They deliver end-to-end solutions (back-office, roadside, enforcement pillars, V2X platforms). Q-Free, Kapsch, and Movyon are leaders in these systems:

• Q-Free – Norwegian competitor with extensive experience in DSRC OBUs. It also plays in the traffic management with solutions based on ALPR (Automatic Licence Plate Recognition) systems and adaptive signal control as well as other toll collection systems such as Multi-Lane Free Flow (MLFF), and enforcement software.

• Kapsch – Austria-based listed – and probably the largest – player in ITS. As Q-Free, they specialize in tolling and Traffic Management having in its portfolio GNSS/DSRC OBUs, MLFF and ALPR systems, and cloud-based tolling platforms.

• Movyon – Italian company part of Autostrade Group that combines DSRC/GNSS OBUs with ALPR and V2X platforms; its strength lies in Italy’s national MLFF systems.

These firms are frequently customers and partners for turnkey deployments – they purchase OBUs, enforcement modules, or integrate NORBIT’s technology into their broader service stacks. However, they also have the capacity to verticalize, meaning they can develop or source OBUs themselves, making them potential competitors when they opt for upstream control.

Their competitive strength lies in their broader ITS portfolios, which allow them to deliver comprehensive traffic systems beyond toll tags. Notably, they are active in Multi-Lane Free Flow (MLFF) systems – barrier-less tolling platforms that use overhead gantries equipped with sensors and cameras to identify vehicles and automatically deduct tolls, eliminating the need for drivers to stop. These systems typically combine toll tag readers with Automatic License Plate Recognition (ALPR) to ensure coverage for vehicles without tags or with malfunctioning devices. Because toll tags represent only a small fraction of total system revenues, companies like Kapsch, Q-Free, and Movyon prioritize MLFF and enforcement infrastructure. This dynamic could also play to NORBIT’s advantage. By focusing on tag development and production, NORBIT avoids the capital intensity and public procurement cycles associated with heavy traffic systems increasing its flexibility to pivot toward the more agile, service-driven tolling ecosystem where NORBIT thrives.

(c) Tier-1 automotive and tachograph suppliers – the OEM gateway

The market for vehicle telematics, digital tachographs, and automotive-grade electronics is dominated by global automotive leaders: Continental and Stoneridge.

• Continental – stands apart as the largest and most strategically ambivalent player: simultaneously partner and competitor. its VDO brand is Europe’s leader in digital tachographs (DTCO) and DSRC-based enforcement. Continental’s scale and OEM integration give it dominance in factory-installed systems. However, Continental may choose to source complementary modules from partners like NORBIT – particularly for niche or regulatory-compliant subsystems.

• Stoneridge – an American automotive supplier with European operations, competes in digital tachographs and telematics. The company has deep experience in fleet compliance systems and DSRC technology, leveraging a broad installed base of OEM customers. Stoneridge strategy emphasizes integration with vehicle electronics and advanced driver-assistance data, rather than pure tolling applications.

Compared with these beasts, NORBIT’s advantage is agility and specializations. It operates in niche compliance-driven domains – such as tachograph enforcement and GNSS-based OBUs for EETS operators – where certifications, speed to market, and adaptability outweigh global manufacturing scales.

Sizing the Players (Comparable segments only)

(Values in USD millions; margins based on latest available data)

The comparison highlights NORBIT’s superior profitability compared to peers – a rare case of a small cap European tech firm with margins > 25% in a hardware-based industry. On the other hand, NORBIT’s USD 45 Million segment revenue is small versus main players (such as Kapsch or Movyon) – limiting lobbying and bid capacity for large public projects.

Product Portfolio Matrix

Key Takeaways:

• Quectel & u-blox are mostly component suppliers – not direct competitors to NORBIT at the system level but they push down module prices and control access to chips. NORBIT’s moat here is integration, certification and vertical value-add

• Q-Free, Kapsch & Movyon have the widest portfolio, but their hardware (OBU) business are relatively small contributors to group revenue. They are integration partners and occasional upstream competitors. NORBIT operates one layer down the value chain, avoiding the political, capex-heavy, and low-margin world of MLFF projects. These companies’ EBIT. margins (2-9%) contrast sharply with NORBIT’s 26%, underlining its asset-light, product-driven model.

• Continental and Stoneridge lead in tachographs but their modules are integrated into broader automotive systems rather than offered as standalone tolling products – which reduces flexibility in serving non-OEM customers.

NORBIT’s Edge:

• Compliance: Its DSRC enforcement modules give NORBIT a unique compliance foothold, directly linked to EU Smart Tachograph mandates. Continental dominates the OEM tachograph market, but NORBIT remains the reference supplier for external enforcement and aftermarket systems.

• Profitability: NORBIT’s EBIT margin (26%) is 3-10x higher than peers in tolling and ITS.

• Flexibility: Vertically integrated production enables cost control and faster iteration than system integrators bound by tender cycles.

• Installed base: high penetration in EU heavy trucks establishes a durable commercial moat.

• Recurring revenue: about 20% subscription share (iData platform) builds resilience absent in most ITS peers.

NORBIT sits in a sweet spot between hardware commoditization and infrastructure complexity:

• Above: chip suppliers (Quectel, u-blox) who lack integration and regulatory competence.

• Below: heavy ITS players (Kapsch, Q-Free, Movyon) whose economics are burdened by large-scale public contracts.

Its hybrid technology, vertical control, and regulatory focus give it an enduring edge in the midstream of Europe’s connected mobility stack. While the giants build the networks, NORBIT builds the boxes – smarter, lighter, and far more profitable.

PIR

In a world chasing scale, PIR operates in the quieter but harder business of precision. It’s where NORBIT’s engineering brain meets its manufacturing muscle – a fully integrated ecosystem that designs, prototypes, and builds high-reliability electronics for clients who can’t afford failure. From medical devices to defence modules and industrial automation boards, PIR’s value lies in control: over design, quality, and increasingly, over geography.

As Europe scrambles to secure supply chains and rebuild strategic manufacturing capacity, PIR has emerged as one of Norway’s most sophisticated design-to-production platforms. Yet this is no empty niche – the field is crowded with regional EMS giants, Nordic specialists, and defence primes expanding into electronics. The battle isn’t just about who can build cheaper, but who can build smarter – closer to the client, with better compliance, confidentiality, and agility.

Direct EMS and Contract-manufacturing competitors fight with PIR for contract manufacturing, industrialization and EMS work across defence, medical, industrial and mobility segments. Kitron (Norway) is the closest and natural competitor in the Nordics with scale in defence, medical and industrial EMS and broad European footprint. Kitron competes on regional presence, multi-site capacity and local certifications. Scanfil (Finland) sits also in Scandinavia, and it can scale production and serve industrial customers across Europe; competes on volume, cost structure and multi-site manufacturing.

Other EMS players – regional specialists such as Hanza, GPV, Inission and large global EMS groups (Flex, Celestica, Jabil) – they can undercut on price or offer global supply-chain reach; PIR competes by selling “high-reliability / Europe-based” manufacturing and integrated R&D. Its European manufacturing, regulated market certifications (e.g. medical) and integrated R&D are direct differentiators versus pure low-cost EMS – but scale and price pressure from bigger EMS groups remain a constant headwind.

Large defence primes both compete for and partner on systems that include electronics modules. Kongsberg, a name already familiar from NORBIT’s Oceans segment is strong in missiles, maritime, C5ISR and subsea technology. It competes for defence electronics programmemes and is scaling production capacity. Recent financial/contract momentum strengthens its market position. Other large European defence integrators (Thales, Leonardo, Saab) supply integrated systems like radars, communications, and C5ISR. These players may source modules from suppliers like PIR or keep production in-house, depending on strategic priorities. The Thales–Kongsberg communications JV in Norway illustrates how consolidation at the prime level can shift sourcing dynamics.

For defence work, PIR’s sweet spot lies in specialized modules and certified manufacturing rather than entire systems. Primes may subcontract this work – creating both opportunity (tier-1 supplier) and risk (primes insourcing or favouring large suppliers/JVs). PIR’s combination of signal/RF expertise and manufacturing is an advantage for NORBIT. However, for ultra-specialised subsystems incumbents with decades of domain experience – particularly in subsea electronics, medical device electronics, radar/RF modules, or secure communications – can be preferred by certain customers. These companies are specialized in subsea electronics, medical device electronics, radar/RF modules, or secure communications. These niche players, though smaller, often possess deep technical expertise and long-standing customer relationships.

On the other hand, NORBIT cannot compete in pure cost-led tenders against large EMS players, nor can it match the scale and multi-site redundancy of regional leaders. This exposes PIR to price and margin pressure, especially when customers prioritize cost over reliability or proximity. Additionally, the consolidation among defence primes – such as the Thales–Kongsberg JV – may reduce subcontracting opportunities or shift preference toward larger, vertically integrated suppliers. Finally, in highly specialized domains like subsea, medical, or radar electronics, PIR faces competition from niche incumbents with entrenched customer relationships and deep domain expertise, which can limit its ability to win certain high-value contracts.

PIR’s strength lies in its ability to offer a tightly integrated, high-reliability, Europe-based design and manufacturing platform tailored to the needs of regulated and mission-critical industries. Its unique blend of R&D, industrialization, and certified production positions it well for clients seeking agility, compliance, and supply chain resilience. However, to sustain its edge, PIR must continue to navigate the dual pressures of cost-driven competition and evolving customer dynamics, particularly in defence and specialized industrial segments. Its future success will depend on deepening its domain expertise, reinforcing its value in high-trust applications, and staying agile in a consolidating and increasingly competitive landscape.

Growth Drivers: Engineering the edge

NORBIT’s growth is fuelled by a multi-faceted strategy that combines organic expansion with strategic acquisitions. The company has a proven ability to identify and capitalize on opportunities within its niche markets.

Product Line Expansions and R&D

A core growth driver is the continuous development of new and improved products. NORBIT consistently reinvests around 5-6% of its revenue into R&D to maintain its technological edge. Research and development investment drives growth through new product development and technology enhancement. This commitment enables introduction of advanced solutions that address evolving customer needs and capture market share from competitors with less advanced offerings.

Recent product innovations, such as the WBMS X sonar system, have contributed to strong revenue growth in the Oceans segment. In Connectivity the creation of next-generation devices for trucks and modules for digital tachographs has opened up large, long-term contracts. These innovations demonstrate NORBIT’s ability to translate technical capabilities into commercial success through targeted product development.

Strategic acquisitions enhance the product portfolio while providing immediate revenue contributions. The acquisitions of PING DSP and Innomar added complementary technologies that expand market addressability while leveraging NORBIT’s existing sales and distribution capabilities.

Market Demand Drivers

Several macro trends support long-term demand growth across NORBIT’s markets. Offshore wind energy development creates expanding opportunities for maritime monitoring and surveillance systems as operators require technology solutions for installation monitoring and maintenance. In this sense I like this statement from the CEO: “I think the world has realized that we do need to take more care of what’s going on underwater. It’s a lot of critical infrastructure underwater that has been without any kind of surveillance”.

Environmental monitoring requirements continue increasing globally, driving demand for specialized sensing and surveillance equipment. Regulatory mandates for maritime safety and environmental protection create ongoing market growth independent of economic cycles.

The defence and security sector presents significant growth potential due to current geopolitical conditions and emphasis on European manufacturing capabilities. NORBIT’s positioning as a qualified European technology provider creates competitive advantages in this expanding market.

Transportation infrastructure modernization drives demand for electronic tolling and fleet monitoring systems. Regulatory requirements for commercial vehicle monitoring ensure stable demand foundations while technology evolution creates opportunities for system upgrades and replacements.

Pricing Power and Market Expansion

NORBIT demonstrates strong pricing power due to the specialized nature of its products and limited competition in specific applications. Maritime customers prioritize performance and reliability over price, enabling premium pricing for superior technology solutions. The company’s ultracompact and wideband multi-beam sonar technology commands price premiums based on technical superiority and operational benefits.

Recent contract awards demonstrate pricing strength, including significant defence sector contracts that reflect customers’ willingness to pay premium prices for qualified European manufacturing and specialized capabilities. This pricing power supports margin expansion and profitability growth beyond pure volume increases.

Geographic expansion provides substantial growth opportunities across all segments. NORBIT’s established manufacturing presence in Europe and North America creates platforms for broader market penetration while maintaining customer proximity and regulatory compliance.

Operational Leverage and Efficiency

NORBIT’s business model provides operational leverage as the company scales across its diversified segments. Fixed costs in R&D, manufacturing infrastructure, and administrative functions can support higher revenue levels, creating margin expansion opportunities as the business grows.

Manufacturing capacity investments position the company to capture increased demand without proportional cost increases. Recent capacity expansion initiatives enable NORBIT to serve growing customer requirements while maintaining delivery reliability and quality standards.

The company’s global sales and distribution platform provides leverage for introducing new products and expanding into additional markets. This infrastructure investment creates sustainable competitive advantages while supporting growth across multiple segments simultaneously.

Strategic Partnership and Acquisition Opportunities

NORBIT’s acquisition strategy focuses on complementary technologies that enhance existing capabilities rather than unrelated diversification. This approach enables rapid expansion of addressable markets while leveraging established customer relationships and distribution channels. Strategic partnerships with customers and technology providers create growth opportunities through collaborative development and market access. These relationships often evolve into long-term commercial arrangements that provide stable revenue foundations and expansion potential. The company’s strong balance sheet and cash generation capabilities support continued strategic initiatives without compromising financial flexibility or operational independence.

Growth drivers across NORBIT’s business segments demonstrate the company’s ability to capitalize on multiple opportunities simultaneously while maintaining strategic focus on specialized technology applications where competitive advantages can be sustained over time.

Risks Tide to the Model: Strength with strain

NORBIT’s business model, while resilient through diversification, faces several categories of risks that could impact financial performance and strategic objectives. The company’s exposure to specialized markets and technological complexity creates specific risk profiles that require ongoing management attention.

I categorize and rate risks Low, Medium and High.

Business and Market Risks (Severity: medium)

Market concentration in specialized applications creates exposure to demand variations within specific sectors. While diversification across three segments provides protection, significant changes in maritime, transportation, or defence spending could impact revenue growth. The specialized nature of applications means that customer project delays or cancellations can have meaningful financial impacts.

Competition from larger technology companies with greater resources poses ongoing risks. Companies such as Kongsberg Maritime, Teledyne Marine, or major transportation technology providers could potentially develop competing solutions or acquire specialized competitors, intensifying competitive pressure.

Technological obsolescence represents a continuous risk in rapidly evolving technology markets. NORBIT’s products must continuously evolve to maintain competitive positioning, requiring sustained R&D investment and successful innovation. Failure to anticipate technology trends or develop competitive responses could result in market share losses.

Customer concentration risks exist within individual segments, where large contracts or key customer relationships represent significant portions of segment revenues. Loss of major customers or contract delays could create revenue volatility and operational challenges.

Poor integration of acquired companies can dilute margins, lead to culture clashes, and destroy value. The company has demonstrated successful integrations so far, but this remains a material execution risk.

Operational Risks (Severity: medium)

Supply chain dependencies create operational vulnerabilities, particularly for specialized electronic components with limited supplier options. Global supply chain disruptions, as experienced during recent geopolitical events, could impact production schedules and cost structures.

Manufacturing complexity across multiple locations requires coordination and quality control systems. Operational disruptions at key manufacturing facilities could impact delivery capabilities and customer satisfaction, potentially affecting long-term relationships.

Key personnel dependency poses risks, particularly in specialized technical areas where expertise is difficult to replace. The company’s growth requires successful recruitment and retention of qualified engineers and technical specialists in competitive labour markets.

Quality control and product reliability risks exist across all segments, where product failures could result in customer dissatisfaction, warranty costs, and potential liability issues. Maritime applications, in particular, involve safety-critical systems where product failures could have serious consequences.

Regulatory and Compliance Risks (Severity: medium)

Regulatory changes affecting maritime safety, transportation monitoring, or defence procurement could impact demand patterns and compliance requirements. Changes in certification standards or regulatory frameworks could require significant adaptation costs and time delays.

International trade restrictions and export control regulations create complexities for global operations, particularly in defence-related applications. Changes in trade policies or security regulations could limit market access or increase operational complexity.

Environmental and sustainability regulations continue evolving, potentially requiring additional investments in product development and manufacturing processes to maintain compliance and competitive positioning.

Data privacy and cybersecurity regulations increasingly affect connectivity and monitoring applications, requiring ongoing investment in security capabilities and compliance systems.

Financial Risks (Severity: medium)

Currency exchange exposure affects international operations and financial results, as revenues and costs occur in multiple currencies including NOK, EUR, and USD. Significant currency movements could impact competitiveness and financial performance.

Project-based revenue timing creates potential for quarterly volatility, particularly in defence and large maritime contracts where customer acceptance and payment schedules may vary from initial projections.

Working capital requirements for inventory and customer financing could increase during growth periods, potentially impacting cash flow timing and financial flexibility.

Interest rate sensitivity affects the company’s cost of capital and customer financing decisions, particularly for large capital equipment purchases that may involve customer financing considerations.

External and Macro Risks (Severity: high)

Geopolitical tensions, while creating defence market opportunities, also create broader economic uncertainties that could affect customer spending patterns and international operations.

Economic recession risks could impact discretionary customer spending on technology upgrades and expansion projects, particularly in commercial maritime and transportation applications.

Cybersecurity threats against the company’s systems or customer installations could result in operational disruptions, liability issues, and reputation damage.

Climate change impacts could affect maritime operations and offshore installations, potentially creating both opportunities and risks for NORBIT’s maritime technology applications.

The company maintains risk mitigation strategies including insurance coverage, diversified operations, financial reserves, and operational contingency planning to address these various risk categories while pursuing growth opportunities.

Historical Evolution: From fjords to frontline

NORBIT’s business model has undergone significant evolution since its founding in the mid-1990s, transforming from a focused Norwegian technology company into a diversified global provider of specialized solutions. This evolution reflects strategic adaptations to market opportunities while maintaining core competencies in engineering and innovation.

Early Development Phase (1995-2008)

The company’s initial focus centered on developing specialized technology solutions for Norwegian and regional markets. During this period, NORBIT established its engineering capabilities and began developing the technical expertise that would later become the foundation for its global expansion. Key leadership development occurred during this phase, with Per Jørgen Weisethaunet joining as one of the first employees in 1995 and assuming the CEO role in 2001. This leadership continuity provided strategic vision and institutional knowledge that guided the company’s evolution. The 2008 transition to co-ownership by management aligned interests and provided the strategic foundation for subsequent growth initiatives. This ownership structure established long-term commitment to value creation and strategic development.

Strategic Diversification (2008-2019)

The period following management ownership saw deliberate expansion into multiple market segments. NORBIT developed its three-segment structure through organic growth and market development, addressing distinct customer needs across maritime, connectivity, and specialized manufacturing applications. Maritime expertise evolved from basic sonar applications to sophisticated subsea systems, environmental monitoring, and aquaculture solutions. This expansion demonstrated NORBIT’s ability to leverage core technologies across multiple maritime applications while building specialized market positions. Connectivity capabilities developed through addressing regulatory requirements for transportation monitoring and tolling systems. This segment emergence provided diversification beyond maritime markets while utilizing complementary technology capabilities. The PIR segment evolved as NORBIT recognized opportunities to monetize engineering capabilities through contract manufacturing and R&D services. This development created additional revenue streams while leveraging existing technical resources.

Public Market Transition (2019-2021)

The 2019 initial public offering marked a significant milestone in NORBIT’s evolution, providing capital for accelerated growth and strategic initiatives. Public market access enabled the company to pursue more ambitious expansion plans while maintaining operational independence. Post-IPO strategic initiatives included capacity expansion, R&D investment increases, and preparation for strategic acquisitions. The company used public market resources to strengthen competitive positioning while maintaining focus on specialized applications. Operational scaling during this period involved expanding manufacturing capabilities, strengthening global sales and distribution, and building organizational capacity to support larger-scale operations.

Acquisition-Driven Expansion (2021-2024)

Strategic acquisitions became a key component of NORBIT’s growth strategy, with transactions focusing on complementary technologies and market expansion opportunities. The acquisition approach emphasized enhancing existing capabilities rather than unrelated diversification. The 2023 acquisition of PING DSP added Interferometric Side Scan Sonar technology to the Oceans segment, demonstrating NORBIT’s commitment to technological leadership through strategic transactions. This acquisition provided immediate revenue contribution while expanding addressable markets. The 2024 acquisition of Innomar Technologie GmbH further strengthened maritime capabilities with sub-bottom profiler technology, creating one of the most comprehensive maritime technology portfolios in the industry. Revenue growth accelerated significantly during this period, culminating in record 2024 revenues of NOK 1,751.4 million. This growth reflected successful execution of the diversified strategy while maintaining profitability and margin expansion.

Current Strategic Phase (2024-Present)

Recent performance demonstrates the maturity and effectiveness of NORBIT’s evolved business model. Q2 2025 revenues of NOK 684.4 million, representing 63% growth, validate the strategic approach while highlighting the company’s scalability. Defence and security market expansion has become increasingly important, with significant contract awards demonstrating NORBIT’s capabilities in this high-value segment. This development reflects the company’s ability to adapt to changing market conditions while leveraging existing competencies.

The business model evolution has maintained NORBIT’s commitment to specialized applications while achieving the scale and diversification necessary for sustained growth. Current performance across all three segments demonstrates successful execution of the strategic transformation.

Looking forward, the company’s evolved business model provides a strong foundation for continued expansion while maintaining the flexibility to adapt to emerging opportunities in specialized technology markets.

Deep Dive IRS Score and Investor Takeaways

Based on comprehensive analysis of NORBIT’s business model, financial performance, and strategic positioning, the Deep Dive Investment Research Score (IRS) components are evaluated as follows (scores are out of 10):

Management: 8.5 – Long-tenured CEO with aligned incentives through co-ownership, consistent execution on strategic targets, and strong governance structure with appropriate board oversight.

Culture: 9.0 – Mission-driven organization with core value “We deliver,” good employee satisfaction, innovation focus, and successful global expansion while maintaining Norwegian engineering excellence.

Business Model: 9.0 – Diversified high-margin specialist with strong internal synergies providing tailored solutions to selected applications with strong pricing power, growing recurring elements, and resilient demand patterns across three segments.

Strategy: 8.5 – Clear competitive positioning with multiple moats including switching costs and regulatory barriers, successful acquisition integration, and effective market selection creating sustainable advantages.

Moats: 7.0 – Strong switching costs and regulatory barriers in key markets, moderate intellectual property protection, but limited network effects and brand power constraints overall moat strength.

Industry Growth: 7.0 – Positive growth drivers from offshore wind, defense spending, and regulatory requirements, but operating in mature markets with technology evolution creating both opportunities and threats.

Capital Intensity and Allocation: 8.0 – Efficient capital deployment through strategic acquisitions, appropriate R&D investment levels, and manufacturing capacity expansion supporting growth without excessive capital requirements.

Earnings and Profitability: 9.0 – Consistent profitability with strong margin expansion, record financial performance across all segments, and effective operational leverage demonstrating pricing power. NORBIT is successfully surfing the waves.

Outlook: 7.5 – Strong fundamentals with multiple growth drivers, but macro uncertainties and competitive pressures in some segments create modest outlook constraints despite positive momentum.

Risks: 6.0 – Well-diversified business model mitigates single-point failures, but supply chain dependencies, customer concentration, market changeovers and technology evolution create ongoing risk management requirements.

Valuation: 7.0 – Premium valuation reflects quality characteristics, but trading multiples require continued execution and growth to justify current levels based on comparable analysis.

Deep Dive IRS Score: 7.9

Investor Takeaways

Core Strength: NORBIT’s diversified specialization model creates sustainable competitive advantages through deep expertise in carefully selected applications where customers prioritize performance over price, generating consistent high margins across maritime, connectivity, and defense sectors.

Key Dependency: Success relies on continued technological innovation and R&D investment to maintain competitive positioning, as specialized markets demand ongoing product evolution and superior performance compared to alternatives.

Top Growth Driver: Defense and security market expansion driven by geopolitical conditions and European manufacturing requirements, as demonstrated by recent NOK 260 million contract awards and growing pipeline opportunities.

Main Risk: Supply chain dependencies for specialized electronic components combined with competitive threats from larger technology companies could impact margins and market position if not effectively managed.

Biggest Unknown: Long-term sustainability of current high growth rates and margin expansion as the company scales, particularly whether specialized market positions can maintain premium pricing power at significantly larger revenue levels.

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Introduction

This is another article from the new Collective Fire Framework initiave. Member Steven van der Burg is the main contributor to this article, but it has been reviewed by other members and myself and I have updated the valuation section where I believe it should be. The thorough reseach Steven did is unmatched. Give Steven a follow on Substack!

Novo Nordisk

Novo Nordisk began as a local insulin manufacturer but over the course of a century, has transformed into a global leader in diabetes and obesity treatments.

The numbers are staggering: its market cap exceeds Denmark’s GDP last year. It directly fuels the national economy and paid DKK 26 billion in taxes last year. Its impact is undeniable - accounting for nearly half of Denmark’s GDP growth in 2024 and driving 70% of the country’s exports.

The company’s roots are in the treatment of diabetes and today it produces over 50% of the world’s insulin supply.

Let’s dive into this amazing company!

How did it start?

Before the 1920s, a diabetes diagnosis was a death sentence. The human body, unable to process glucose, would succumb to the slow, destructive creep of high blood sugar. But everything changed in 1921. Canadian surgeon Frederick Banting had a hunch: if he could tie off the pancreatic ducts in dogs, maybe he could isolate the mysterious substance-insulin-that seemed to control blood sugar. John Macleod, a skeptical but supportive professor at the University of Toronto, provided lab space and paired Banting with Charles Best, a bright and eager medical student.

Banting and Best worked tirelessly, often through the night, struggling with crude equipment and countless setbacks. But their persistence paid off. By the summer of 1921, they had managed to extract insulin which they injected into a diabetic dog, restoring its health. The results were astonishing.

With help from biochemist James Collip, they refined the extract for human use, and in January 1922, they performed a medical miracle: a 14-year-old boy named Leonard Thompson, dying of diabetes, received an injection of insulin. He recovered almost instantly.

Across the Atlantic, Danish physiologist August Krogh saw hope for his diabetic wife. After visiting Toronto and obtaining permission to bring insulin extraction methods back to Europe, he partnered with Hans Christian Hagedorn to establish the Nordisk Insulin Laboratorium in 1923. This was the seed that would grow into Novo Nordisk, a global leader in the field of diabetes treatment.

In 1924, Crowe, Hagedorn, and Kongstead, who owns Lion Chemical, they all come to an agreement. They’re going to set up a new independent and self-owning institution to produce and distribute this insulin throughout Europe. They set it up as an operating company – Nordisk Insulin - which is 100 percent owned and controlled by a foundation that they also set up. The operating company is publicly traded. But still, that foundation controls 77% of the voting shares of Novo Nordisk and 28% of the economic shares.

The very first employees of the Insulin Project, even before Nordisk gets created, are two brothers, Harold and Torvald Petersen. But Hagendorn and Torvald couldn’t get along. Hagedorn thinks he’s in charge and Torvald – who’s just been hired – thinks he’s in charge. They are constantly fighting for 6 months, until one day they get into a huge argument and Hagendorn fires him. Harold, the older brother, resigns in solidarity and they’re super angry.

They started a new insulin company, Insulin Novo. And for the next 65 years, these two companies would compete head-to-head, absolutely hated each other, until they finally merged in 1989.

Around the merging, the industry starts researching on Glucagon-like-peptide-1 (GLP-1) receptor agonists as promising treatment. The problem is that GLP1 only stays active in your body for about five minutes before your body completely metabolizes it and breaks it down. So, in a normal healthy person, you’re just producing GLP1 all the time and it’s regulating your insulin production. In type 2 diabetes, that gets disrupted. You can’t just put more regular human GLP1 in the body, or it’s disappearing immediately.

A whole lot of people across the industry bang their heads against the wall. Nobody could figure out how to make this work. The industry and the academic research community pretty much abandons it as a drug candidate. Lotte Bjerre Knudsen jumps on it right after she started at Novo in 1989 - the same year the merger happened. She works for years on it, and she faces a lot of pressure inside and outside the company. And then finally, a few years later in the mid-nineties management gives her an ultimatum of 1 year.

So eventually she develops a GLP-1 analog from a molecule type called liraglutide that includes a fatty acid grafted onto the molecule that helps prevent the body from breaking it down. And this is the big breakthrough. Liraglutide ends up having a half-life in the human body of 13 hours compared to 2,5 minutes for straight up GLP-1. They start the clinical trial path first with animal trials for several year and subsequently many phases of human trials.

And that brings us to 2005, when the world’s first GLP-1 analog drug finally comes to market for the treatment of type 2 diabetes; Bayetta. But this does not come from Novo; it is launched by Eli Lilly! It will take 2 more years until 2007 before Novo’s GLP-1 agonist enters phase 3 human clinical trials, which ultimately leads to a market introduction in 2009, by the name Victoza.

Management – The Foundation and aligned incentives

Novo is a company that plays the long game. It’s been around for over 100 years and in that entire time, it’s only had five CEOs. The sixth CEO just started in the beginning of August 2025. That’s not just a statistic - it’s an outcome of a deep-rooted culture of promoting from within, valuing institutional knowledge, and building leadership that’s personally invested in the long-term success of the business.

Foundation

One of the more unusual features of Novo’s structure is its ownership: the Novo Nordisk Foundation owns just 28.1% of the shares, but controls 77.3% of the votes through a dual-share structure. At first glance, this might seem unfair to minority shareholders. But in practice, it acts as a stabilizing force. It shields the company from activist investors and hostile takeovers, allowing management to focus on long-term innovation and sustainable growth instead of chasing quarterly earnings targets.

Management

Previous CEO: Until August 2025, Lars Fruergaard Jørgensen (age 58) served as CEO. As a ‘Novo lifer’, he joined the company in 1991 and rose through the ranks. He became CEO in January 2017, succeeding Lars Rebien Sørensen. Jørgensen’s track record is marked by shepherding Novo through a boom in GLP-1 diabetes and obesity therapies – Novo’s sales, profits, and market cap surged under his tenure. He was named Financial Times Person of the Year 2023 for Novo’s industry leadership. However, after 34 years at Novo, he stepped down effective 7 August 2025 by mutual agreement with the board amid intensifying competition and a halving of Novo’s share price since mid-2024. The board explicitly cited ‘recent market challenges’ – principally the rivalry with Eli Lilly in obesity drugs – as a reason for the leadership change. Jørgensen will be remembered for expansive growth but also for what was termed a cautious culture at Novo that may have slowed its response to new competition.

New CEO: On 7 August 2025, Maziar “Mike” Doustdar (age 55) took over as President and CEO. Doustdar is a 33-year Novo Nordisk veteran who joined in 1992 as an office clerk and steadily advanced through international roles. He led Novo’s International Operations as Executive Vice President (EVP) since 2015, during which time non-US sales more than doubled to DKK 112 billion by 2024. As an Iranian-born Austrian – and as the first CEO without an ‘ø’ in his name – Doustdar grew up partly in the U.S., though his career was mainly abroad. His appointment – an internal promotion with unanimous board support – came after a comprehensive search including external candidates. Industry watchers were somewhat surprised Novo chose an insider given calls for a U.S.-savvy leader, but Lund praised Doustdar as an exceptional leader with a clear vision and a track record of driving growth through strong execution and team building. Doustdar’s deep institutional knowledge and demonstrated ability to scale operations will be critical as Novo navigates its ‘next growth phase’.

CFO: Karsten Munk Knudsen (age 53) has been CFO since 2018. He joined Novo in the 1990s and held numerous finance roles, including a stint as finance & IT VP in the U.S., before becoming CFO. Knudsen is highly regarded for financial discipline – under his stewardship Novo maintained robust profitability (operating margins at ca. 42–44% in recent years) and a stable dividend policy. He also plays a strategic role in capital allocation and has been candid in investor calls about challenges like U.S. pricing and compounded drugs. Knudsen’s international experience and steady hand have made him an effective and respected CFO. As of end-2024, he personally held approx.. 208,000 Novo shares (ca. DKK 73 million market value), reflecting his long tenure and aligning his interests with shareholders.

CCO: Novo Nordisk’s commercial strategy was long led by Camilla Sylvest (age 52) as EVP for Commercial Strategy & Corporate Affairs. Sylvest joined Novo in 1996 as a trainee and built a 28-year career across pricing, country management, and regional leadership roles. She spent seven years on Executive Management, often appearing with the CEO and CFO on earnings calls. Sylvest was instrumental in global launches of Ozempic/Wegovy and shaping Novo’s market access and corporate sustainability messaging. In April 2025, however, she stepped down from the company after a distinguished 28-year career, with no reason cited.

Her departure prompted a leadership reshuffle: Novo consolidated commercial strategy with its therapeutic portfolios under Ludovic Helfgott.

Helfgott, who joined Novo in 2019 from AstraZeneca, had successfully built Novo’s Rare Disease unit as EVP. With Sylvest’s exit, he assumed an expanded role as EVP for Product & Portfolio Strategy, overseeing global commercial strategy, medical affairs, and business development. Helfgott’s background (former AZ global VP for cardiovascular/metabolic) and fresh perspective make him a key figure in Novo’s growth plans. He is one of the few top executives hired externally, signaling Novo’s willingness to inject new ideas at the highest level.

COO: Novo Nordisk does not have a single-titled ‘COO’; operational leadership is distributed. First one to mention is Henrik Wulff (age 54), EVP for Product Supply, Quality & IT – essentially the global head of manufacturing and supply chain.

Wulff joined Novo in 1998 and has 27+ years at the company, including seven years on Executive Management. He has overseen massive production scale-ups (e.g. the $2 billion+ investments to expand facilities in Denmark, U.S., France, China, Brazil) to meet demand for GLP-1 drugs. Wulff’s logistics background and long experience ensure operational continuity and quality.

Additionally, Emil Kongshøj Larsen (EVP, International Operations) and David Moore (EVP, North America Operations) manage commercial operations in their regions, reporting to the CEO. This structure, while decentralized, has historically served Novo’s global reach well, though the new CEO Doustdar (himself former Int’l Ops chief) may adjust responsibilities.

Development: Martin Holst Lange, EVP for Development (now Chief Scientific Officer as of Aug 2025), leads R&D – critical for Novo’s future pipeline. A 20+ year Novo veteran (MD, PhD), Lange now unifies early research and late-stage development after a recent reorganization.

His elevation to CSO and the retirement of predecessor Marcus Schindler in 2025 reflect a drive to streamline innovation.

Capital Allocation

Effective capital allocation is a hallmark of Novo Nordisk’s management. Novo Nordisk has delivered exceptional returns on invested capital (ROIC). Over the last few years ROIC has ranged from 30% to 32%, exceeding its cost of capital. Such high ROIC reflects management’s disciplined investment in core businesses (diabetes, GLP-1, etc.) where Novo enjoys competitive advantages, and restraint in chasing low-return diversification.

Novo’s first priority is funding organic growth – notably R&D and manufacturing capacity. In 2024, facing unprecedented demand for its obesity and diabetes drugs, Novo deployed more than DKK 129 billion on capital expenditures and acquisitions to expand production and innovation capacity. This included acquiring three manufacturing (fill-finish) plants from Catalent and expanding sites in five countries. These moves, while costly up-front, address supply bottlenecks and should sustain long-term growth.

R&D spending has likewise remained robust; management continues to fund pipeline projects (like next-generation GLP-1 combos, oral therapies, and new rare disease drugs) to ensure future growth engines, rather than cutting back to boost near-term earnings.

Shareholder Returns

At the same time, Novo Nordisk consistently returns excess cash to shareholders through dividends and share buybacks – but importantly, does this within the bounds of attractive valuation and available free cash flow. The company has a stable dividend payout ratio around 50% of net profit, balancing income to shareholders with retained earnings for growth. Dividends per share have grown from DKK 4,18 in 2019 to DKK 11,40 for 2024 (a 21% CAGR), reflecting underlying earnings growth.

Beyond dividends, management uses share repurchases as a key allocation tool. From 2020 to 2024, Novo spent DKK 16–30 billion annually on buybacks, steadily reducing the share count. Shares outstanding dropped from 4.757 million to 4.463 million over 2019–2024, about a 5% cumulative reduction – indicating buybacks more than offset any stock issuance for incentives.

Importantly, Novo appears mindful of valuation and internal needs when buying back stock. In 2024, for example, the repurchase budget was scaled down 33%, to DKK 20 billion from 30 billion in 2023, likely because the company had massive expansion capex and the stock price was at historic highs. This suggests management did not mind pausing some buybacks rather than overpay for shares at peak valuations or starve investments.

From a more negative perspective, Novo prefers dividend payment on top of share buyback and therefore does not buy any shares in 2025.

M&A and expansion strategy

Novo Nordisk’s approach to acquisitions has been strategic and disciplined, not empire-building. Management has generally shunned mega-mergers and instead pursued targeted acquisitions that enhance Novo’s technology or product portfolio. In 2018 Novo made a bid for Belgian biotech Ablynx for roughly USD 3.1 billion but walked away when the target held out for a higher price (ultimately being bought by Sanofi). Novo’s refusal to chase Ablynx at any cost indicated price discipline – they wouldn’t destroy shareholder value just to buy growth.

A few years later, Novo did acquire Dicerna Pharmaceuticals for USD 3.3 billion in 2021. That deal gave Novo a leading RNAi therapeutic platform, aligning with its focus on serious chronic diseases. While Novo paid a significant 80% premium for Dicerna, this was a long-term bet on a new technology, and it fit Novo’s core areas on cardiometabolic and rare diseases. The acquisition was done in cash, reflecting Novo’s strong balance sheet, and avoiding equity dilution.

Besides Dicerna, most other deals have been smaller or were partnership buyouts. For example, Novo acquired rights or firms in fields like cardiology and NASH but has avoided diversifying beyond healthcare.

Some thoughts about recent communication

On quarterly calls, Novo’s management historically provides clear, if conservative, guidance and does not shy away from tough questions. During the recent updates in July and August 2025, management transparently cut the 2025 sales growth outlook from 10–16% to 8–14%, explaining the specific reasons: slower obesity drug uptake in certain markets, competition from Eli Lilly’s rival drug, and persistent use of compounded (unapproved) GLP-1 products in the US. They explicitly quantified the impact of these factors rather than using vague excuses. The CFO, Karsten Knudsen, frankly told analysts that the revised outlook assumes no reduction in compounding (i.e. they are not banking on an external fix). By discussing such details openly – even though it meant delivering bad news – Novo’s management showed a commitment to realism over optics.

Notably, they acknowledged competitor Lilly by name in commentary and admitted Lilly’s weight-loss drug had overtaken Wegovy in US prescriptions earlier in the year. This message about a rival’s success is a strong indicator of transparency. Novo also addressed pricing risks directly: in Q2 2025, management warned of “stronger pricing pressure in the U.S.” and the likely need for higher rebates/discounts.

Is there skin in the game?

Novo Nordisk’s management incentives are structured to align executives’ interests with those of long-term shareholders, with substantial insider ownership. The company explicitly requires top executives to ‘eat their own cooking’ by holding meaningful equity stakes. Novo mandates that the CEO hold at least 3× their annual base salary in Novo Nordisk shares, and EVPs hold at least 1.5× their salary in shares. These are significant requirements, phased in over 5 years of appointment. As of 31 Dec 2024, all executives met or exceeded these ownership guidelines.

Previous CEO Lars Jørgensen held 590,550 shares at year-end 2024 – worth around DKK 207 million. This is a massive personal stake (well over his annual base salary), meaning his fortune rose and fell with Novo’s share price which is a strong alignment with shareholders.

CFO Karsten Knudsen held ca. 208,000 shares (DKK 73 million), also far above his requirement. In total, the Executive Management team owned approx. 1.48 million Novo shares at end-2024. Notably, even non-registered EVPs (the ones not officially listed as executives with regulators) collectively held 680,000 shares. This broad equity ownership shows that senior managers have skin in the game.

Novo’s policies prevent rapid dumping. For instance, under Novo’s Long-Term Incentive Program (LTIP), when shares vest after a 3-year performance period, executives must hold a portion for an additional 2 years; 50% of vested shares for older grants, 40% for the 2024 grant. This enforced holding period means management can’t immediately cash out stock awards; they remain exposed to the stock’s future performance, fostering a longer outlook.

Executives do occasionally sell shares (e.g. Jørgensen sold 180,000 shares in 2024, likely for diversification or tax, but still ended the year with more shares than he started. CFO Knudsen similarly sold some (60,000) but acquired more (84,000) in 2024. Also in August 2025, Horst Lange sold almost 14,000 shares – worth 4.4 million DKK – and Helfgott sold 28,700 shares – worth 8.5 million DKK. Especially the timing – during all-time low valuation – creates some colored flag.

Are incentives aligned?

Executive remuneration at Novo is a mix of base salary, short-term incentive (annual cash bonus), and long-term share-based incentives. The short-term bonus (STIP) is tied to both financial targets (sales, operating profit) and individual strategic goals. Importantly, these individual goals often include non-financial metrics such as product launches, diversity & inclusion progress, and other long-term health indicators. In 2024, for example, Lars Jørgensen’s individual STIP payout was only 50% of max, partly because Novo missed certain targets. As a result, Jørgensen’s total compensation for 2024 was about DKK 57.1 million, down DKK 10 million from the prior year. In other words, he took a pay cut due to underperformance on both financial and DEI (diversity, equity, inclusion) goals. This sends a strong message that bonuses are not guaranteed; they hinge on achieving strategic milestones that matter to long-term value (profitability) and corporate culture (diversity).

The long-term incentive plan (LTIP) is even more aligned with shareholder value. It is entirely share-based, with a 3-year performance period and additional holding requirement. The performance metrics for LTIP are a balanced scorecard: 1/3 sales growth, 1/3 operating profit growth, and 1/3 non-financial strategic goals (e.g. innovation milestones, sustainability). This multi-year measurement ensures executives are rewarded only if they deliver sustained business success and progress on key strategic initiatives, not just a one-year spike. There’s also a cap such that even at maximum performance, the CEO’s LTIP grant can’t exceed 2.5 years’ base salary (30 months) worth of shares at grant. All shares for LTIP are granted from treasury stock (so no dilution), and as noted, they must hold vested shares for years, so any value they realize depends on Novo’s stock holding up or rising over a 3–5 year span.

How satisfied are employees?

Novo Nordisk is generally seen as a desirable employer, both in Denmark and globally. On Glassdoor, 84% of employees would recommend working at Novo Nordisk to a friend, and the company scores 4.2/5 on culture & values. Work-life balance and benefits are rated highly at 4.1/5. These metrics are stronger than many industry peers, indicating that employees feel respected and well-treated. It’s not uncommon for staff to spend 10, 20, even 30+ years at Novo. For instance, top executives like Jørgensen, Wulff, and Sylvest all started as junior employees and stayed decades. This internal promotion tradition suggests Novo is good at developing its people and that employees see long-term career paths. Management clearly focuses on talent retention as a strategic priority; even as headcount rose 20% in 2024 amid rapid expansion, they emphasized onboarding and integrating new hires into the Novo Nordisk Way to maintain culture cohesion.

From Insulin to Semaglutide

Today, Novo Nordisk dominates the global insulin market, but its real leap came with the development of GLP-1 receptor agonists, especially semaglutide, the active ingredient in drugs including Ozempic and Wegovy.

For most of its history, Novo Nordisk focused on supplying insulin. Currently they treat approx. 30 million people with Insulin.

Yet today it finds itself developing drugs that prompt the pancreas to release insulin by mimicking a hormone called GLP-1, or glucagon-like peptide 1.

The natural GLP-1 hormone is rapidly broken down in the body - it has a half-life of less than 2 minutes - making it impractical as a therapeutic agent and unsuitable as a drug because it degraded so rapidly - patients cannot be expected to take the medication every 2 minutes.

By the mid-1990s, most pharma companies had abandoned pursuing the development of GLP-1 based treatments for this reason. Lotte Bjerre Knudsen was tasked with one last attempt to make the hormone viable as a drug. By attaching a fatty acid chain to the GLP-1 peptide, she dramatically extended its half-life, resulting in once-daily and eventually once-weekly treatments.

‘Semaglutide’ is the generic name used by Novo Nordisk for its GLP-1 products.

GLP-1 products accounts for 70% of the revenue of Novo Nordisk - 50% on GLP-1 Diabetes products and 20% on GLP-1 Obesity products.

The positive side effect – Weight loss

When people began to use these new drugs there were unintended, but most welcome, side effects which resulted in their application being extended.

Semaglutide works by regulating blood sugar levels and slowing down the rate at which food leaves the stomach, often creating the feeling of fullness. Almost immediately, doctors noticed that patients on these drugs lost weight.

It was a breakthrough with a twist of irony. Obesity is one of the main drivers of type 2 diabetes - the very disease Novo Nordisk has been working to treat for decades. So, by helping patients lose weight, the company was now tackling the root cause before the disease even developed.

The scale of the obesity crisis is staggering. In the U.S., 41.9% of adults and 17% of children are classified as obese, according to the Center for Disease Control and Prevention (CDC).

Beyond the health implications, obesity is a major financial problem, placing a heavy burden on overstretched healthcare systems. It costs the U.S. healthcare system an estimated $173 billion a year, as it’s closely linked to other chronic conditions. That gives governments and health organizations a powerful incentive to support treatments that can turn the tide.

Over 1 billion people worldwide grapple with obesity, a number climbing steadily due to poor diets and too little exercise. As a result, analysts estimate the 2035 obesity drug market will be worth USD 150 billion - up from almost USD 10 billion in 2023. Staggering numbers!

But first, let’s dive into the offered Insulin products

Novo Nordisk has historically maintained the industry’s broadest and most diversified insulin portfolio, but as of August 2025, the company is undergoing a strategic reduction and modernization of its insulin product lines.

Volume: Total Insulin revenue was 19% of Total Sales Volume in 2024, but volumes were decreasing over the past years.

Growth was back in 2024 with a nice figure of 15%. Anyway, the percentage Insulin sales versus the total Sales is still decreasing due to higher growth of GLP-1 products.

Market share (Q1 2025): Novo Nordisk remains the world’s largest insulin manufacturer by volume, with a clear strategic pivot to higher-value, modern insulin analogs and away from older, less differentiated molecules and formats. Novo Nordisk reported DKK 14,997 million in global insulin sales (+3% CER YoY), with global volume market share at 43.5% (US: 31%, International Operations: 47%). Insulin sales remain strongest in emerging markets and China.

Product access: Novo Nordisk’s access and humanitarian strategies mean legacy human-based insulins (Mixtard, Actrapid, Insulatard) are still widely available in low- and middle-income countries, though modern analogs now dominate in high-income markets.

Recent discontinuations: Major product rationalizations in 2024-2026: Levemir phased out in the US (2024), discontinuing in EU and other markets by December 2026. NovoRapid FlexTouch discontinued in March 2025. NovoMix30 to be discontinued by end 2026. Fiasp PumpCart and other forms to be phased out by end 2026. Insulatard phased out most EU markets July 2025.

New launches: Awiqli (insulin icodec), a once-weekly long-acting basal insulin, is a major recent innovation and launched in early-adopter countries. The launch of Awiqli marks the biggest advance in insulin therapy dosing since the transition to basal analogs and could provide a competitive moat if weekly basal insulin becomes the new standard.

Ryzodeg (insulin degludec/aspart) is now being funded and positioned as a next-generation premix insulin option, particularly replacing NovoMix30.

Strategic shift: Novo Nordisk is actively winding down legacy and lower-margin insulin products, especially in developed markets, to prioritize next-generation basal insulins (Tresiba, Awiqli) and innovative GLP-1 therapies. This product pruning directly addresses supply-demand constraints and supports margin expansion.

Offered GLP-1 products

Novo Nordisk’s current GLP-1 products are centered around three leading semaglutide-based treatments - Ozempic, Wegovy, and Rybelsus - as well as the older liraglutide-based products like Victoza and Saxenda. Each has distinctive indications for diabetes and/or obesity.

Ozempic (semaglutide, injectable, weekly): Approved for type 2 diabetes (T2D) since 2017 (US) and for cardiovascular (CV) risk reduction in 2020. In January 2025, Ozempic was further approved to reduce the risk of kidney disease progression, kidney failure, and cardiovascular death in T2D with chronic kidney disease, making it the most broadly indicated GLP-1 RA currently available. Ozempic is the second best-selling medicine in the world, after Keytruda for cancer from Merck. Significant 41,4% of sales in 2024.

Wegovy (semaglutide, injectable, weekly): Approved for weight management since June 2021 in the US. Label extended for reduction of CV events (late 2024) based on landmark trial results. Wegovy has driven a 65% YoY increase in Novo’s obesity sales in Q1 2025. 20% of sales in 2024.

Rybelsus (semaglutide, oral, daily): Approved for T2D in 2019 in the US; currently the only oral GLP-1 on market for diabetes. Novo Nordisk filed for US approval of an oral semaglutide 25mg dose for obesity - if approved, it would be the world’s first oral GLP-1 drug for weight control (decision expected Q4 2025). Currently 8% of sales in 2024.

Victoza (liraglutide): Previously flagship injectable, now declining due to semaglutide’s superior efficacy and weekly dosing. Projected sales are in continued decline as of 2019.

Saxenda (liraglutide): First GLP-1 for chronic weight management, now largely superseded by Wegovy.

Summary

Novo Nordisk’s current GLP-1 portfolio is highly concentrated in the semaglutide platform, with differentiated delivery (injectable, oral) and multiple regulatory approvals positioning the company for continued growth out to the end of the decade.

Ozempic and Wegovy have both benefited from expanded regulatory indications, resulting in larger patient pool eligibility (diabetes, obesity, cardiovascular, and kidney protection).

Rybelsus, if approved at higher dosages for obesity, would be strategically significant - Novo Nordisk would hold differentiated, oral, first-in-class GLP-1-based obesity therapy, likely accelerating future market share gains.

Liraglutide-based products (Victoza, Saxenda) are now past their market peak and contributing less to growth, emphasizing Novo Nordisk’s successful transition to semaglutide-based next-generation GLP-1 RAs.

The expected FDA decision on oral semaglutide for obesity (anticipated Q4 2025) is a potential catalyst for further portfolio expansion, market leadership reinforcement, and revenue growth.

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Who is the competition?

Eli Lilly (LLY) is Novo Nordisk’s most immediate competitor. Both Novo Nordisk and Eli Lilly have revolutionized treatment of type 2 diabetes and obesity with GLP-1-based drugs.

Novo Nordisk pioneered the field with semaglutide, marketed as Ozempic for diabetes and Wegovy for obesity.

Eli Lilly challenged this dominance with tirzepatide, a dual GLP-1/GIP agonist branded as Mounjaro (for diabetes) and Zepbound (for obesity). Novo Nordisk also markets liraglutide – as Victoza for diabetes and Saxenda for obesity – though these daily injections are now largely superseded by weekly semaglutide.

Both companies now dominate the GLP-1 market in what has become a de-facto duopoly, with others like Sanofi (SNY) and Pfizer (PFE) lagging.

Compared to the sprawling portfolios of some pharma giants, Novo Nordisk’s business is refreshingly straightforward. Novo Nordisk is a global leader in endocrinology, developing innovative therapies for diabetes, rare blood disorders, obesity, and hormone-related disorders, while Eli Lilly also focuses on a variety of other portfolios. This concentrated focus allows Novo to channel its expertise into a single domain and to build a reputation as a specialist in this field.

Both firms will also offer oral GLP-1 options. Novo’s Rybelsus (oral semaglutide) is already approved for diabetes, while Lilly is developing Orforglipron, a first-in-class oral non-peptide GLP-1 agonist showing ~14.7% weight loss in Phase 2.

Let’s dive into the differences between the product classes of both competitors.

Victoza vs. Trulicity

Novo Nordisk’s Victoza (daily liraglutide injection for diabetes) was approved in 2010. Its major patents have recently expired: in the US and Europe, the patent ran out at the end of 2023, after which generic versions appeared in 2024. Eli Lilly’s Trulicity (weekly dulaglutide injection) came later – FDA approval in 2014 – and is still protected until around 2027 (expected US patent expiration in 2027, with data exclusivity until 2026). Trulicity likely won’t see biosimilar competition until 2027/28, whereas Victoza now faces generic competition.

Usage, dosage & frequency

Victoza is administered subcutaneously every day (starting dose 0.6mg, maintenance typically 1.2mg or up to 1.8mg once daily). Trulicity differentiates itself with weekly dosing (start at 0.75mg once per week, standard 1.5mg; later, higher doses of 3.0mg and 4.5mg per week were introduced to increase effectiveness). Weekly administration of Trulicity was a major convenience advantage compared to daily injections with Victoza. Both are delivered as pens for subcutaneous injection.

Clinical effectiveness & side effects

Both liraglutide and dulaglutide are effective GLP-1 agonists for type 2 diabetes. They typically lower HbA1c by about 1–1.5 percentage points and lead to some weight loss (a few kilograms) in diabetic patients. Direct head-to-head data are limited, but in general weekly GLP-1s showed comparable or slightly better outcomes than older daily regimens due to better treatment adherence. Semaglutide (see below) has shown in trials to be more effective than dulaglutide for glucose control, but Victoza vs. Trulicity are both older generation: both significantly improve glucose control.

The side effect profiles are similar: chiefly gastrointestinal (nausea, vomiting, diarrhea) in ~10–20% of patients, especially during dose escalation. Victoza has a long safety track record, but daily injections make it less user-friendly; Trulicity’s weekly dosing improved convenience and adherence.

GI side effects with GLP-1 agonists are generally dose-dependent; Trulicity’s higher 4.5mg dose induced more nausea than lower doses, but this is similar to higher liraglutide doses (like Saxenda). Both drugs rarely cause severe side effects; pancreatitis is a rare but noted risk in this class.

Competitive position

Victoza was the GLP-1 market leader for years, but Trulicity’s weekly dosing posed a clear competitive threat for Novo. Eventually Novo’s Victoza was overtaken—primarily not just by Trulicity but by Novo’s own next-generation semaglutide (Ozempic). In 2023, Victoza sales dropped by more than 50% as the market shifted to weekly GLP-1s. Trulicity holds volume as a weekly option but is pressured by newer, more effective GLP-1s. Novo essentially ended the Victoza battle by launching its own better successor (Ozempic), but Eli Lilly’s Trulicity did result in market share losses for Victoza.

Ozempic vs. Mounjaro (Diabetes)

Ozempic (weekly semaglutide injection for diabetes) was approved at the end of 2017 (US) and is now a blockbuster for Novo. The core patents for semaglutide expire in 2026, but Novo has additional patents (formulation, dosage) that can provide protection until ~2031–2033. In the US, generic semaglutide is not expected before 2032, though patents elsewhere end earlier (e.g., China in 2026).

Mounjaro (tirzepatide, a dual GIP/GLP-1 agonist by Lilly) is much newer, approved May 2022 (US) for T2D. Tirzepatide is a new molecule with patent protection expected into the late 2030s (at least 2034+). Lilly also benefits from 12 years of data exclusivity (for biologics) in the US, so no biosimilar is expected before ~2034. Both drugs are protected for many years.

Usage, dosage & frequency

Ozempic and Mounjaro are both weekly subcutaneous injections via pre-filled pens. Dosages differ: Ozempic starts with 0.25 mg per week (for 4 weeks), then maintenance at 0.5 mg; can be increased to 1 mg and recently up to 2 mg per week for added effect.

Mounjaro starts at 2.5 mg per week and increases every 4 weeks: 5 mg, then 7.5 mg, 10 mg, up to 15 mg weekly. Gradual titration for both drugs help minimize side effects (mainly nausea). Both are once weekly—a major advantage over daily injections.

Clinical effectiveness

Tirzepatide (Mounjaro) has shown superior results in clinical studies compared to semaglutide. In the SURPASS-2 trial in type 2 diabetics, tirzepatide at all doses outperformed Ozempic 1 mg weekly. Specifically: tirzepatide 15 mg reduced HbA1c by ~2.3 percentage points vs ~1.9 pp with semaglutide 1 mg. Also, weight loss was greater: 6.2 kg for Ozempic vs. 12.4 kg for Mounjaro.

Lilly’s Mounjaro therefore achieved better blood sugar control and significantly greater weight loss in direct comparison. This superiority is attributed to tirzepatide’s dual mechanism (stimulating both GLP-1 and GIP receptors), giving an additive effect on appetite suppression and glucose control. Ozempic is highly effective—it has propelled GLP-1s to unprecedented heights—but is outperformed by Mounjaro’s results.

Side effects

The safety profiles for Ozempic and Mounjaro are very similar, primarily GI complaints. In the SURMOUNT-5 obesity study, nausea occurred in ~44% of both groups and abdominal pain in ~25%—practically the same. In diabetes studies, mild GI symptoms were slightly more frequent with tirzepatide during titration, but there were no major new safety issues.

Competitive position

Ozempic has been one of Novo’s main growth drivers, but Eli Lilly’s Mounjaro is the strongest competitor yet. Studies clearly show tirzepatide is more effective in both diabetes control and weight loss. This has commercial consequences: Mounjaro is rapidly winning global market share in the GLP-1 segment. Lilly now has a superior product, putting Novo’s dominant position under pressure.

Novo retains strengths: huge manufacturing capacity, global distribution, and a strong brand name (Ozempic is nearly synonymous with GLP-1s).

Wegovy (Semaglutide) vs. Zepbound (Tirzepatide)

Wegovy is the obesity version of semaglutide (higher dose, 2.4 mg/week). FDA approval was in June 2021. It uses the same active molecule as Ozempic; patent/exclusivity status largely matches Ozempic (US core patent to ~2032, EU 2031).

Lilly’s tirzepatide gained a distinct brand for obesity: Zepbound, FDA approved November 2023 for chronic weight management. In the EU, the indication of Mounjaro was formally extended to obesity in April 2024. Tirzepatide’s patent protection is the same as Mounjaro (new molecule, protected until the late 2030s). Wegovy’s patent relies on semaglutide’s secondary patents, possibly lasting to 2033, so no generic is expected for at least five years.

Usage, dosage & frequency

Wegovy and Zepbound are both weekly subcutaneous injections specifically for weight loss. Wegovy (semaglutide 2.4 mg) requires gradual dosage up-titration: start at 0.25 mg/week, increased stepwise (0.5 – 1.0 – 1.7 – 2.4 mg) over 16–20 weeks to reach full dose 2.4 mg.

Zepbound (tirzepatide for obesity) uses the same schedule as Mounjaro: escalating from 2.5 mg up to 15 mg/week in 4-week steps. Both are intended for long-term use in patients with obesity (BMI ≥30, or ≥27 with comorbidity). Pre-filled pens are used, self-injection in abdomen/thigh once per week.

Wegovy and Zepbound are similar in their weekly regimen. Lilly’s pen (Mounjaro) offers multi-dose options, Novo’s Wegovy pen is single dose per week. Both are easy to use in practice.

Clinical effectiveness

Tirzepatide is clearly more effective. A phase 3b head-to-head study (SURMOUNT-5) in obesity without diabetes showed tirzepatide 10/15 mg achieved average weight loss of 20.2% after 72 weeks, versus 13.7% with semaglutide 2.4 mg. In absolute terms: 22.7 kg lost with tirzepatide vs. 15 kg with Wegovy. Moreover, 32% on tirzepatide lost ≥25% body weight, compared to 16% with Wegovy.

Side effects

Side effect profiles are nearly identical. In SURMOUNT-5, about the same number of patients experienced nausea and stomach complaints in both groups. GI side effects (nausea ~40–45%, diarrhea, constipation) are common with both Wegovy and Zepbound, usually mild/moderate and during dose escalation. Dropout due to side effects is somewhat higher for tirzepatide in some studies, but not dramatically different (often <10% dropout for both). Importantly, tirzepatide does not introduce fundamentally new side effects compared to semaglutide.

Competitive position

Novo Nordisk was first to market with Wegovy, a truly effective obesity drug, initially with little effective competition. That lead is now eroding due to Lilly’s arrival. Tirzepatide (Zepbound) surpasses Wegovy in weight loss and is expected to be extremely popular. Lilly has gained a large portion of the obesity market within about a year. For the next five years, Novo’s dominance is not guaranteed: Wegovy will keep growing (current demand exceeds supply), but Novo must share market with Lilly.

Novo’s strengths: Wegovy has first-mover reputation and has already benefited many patients; Novo has massively ramped up production. Novo is also expanding semaglutide’s indication portfolio (such as for NASH/MASH—non-alcoholic fatty liver—which may be approved in Q4 2025). This could open new markets.

However, Lilly is also moving fast: tirzepatide may receive additional indications (e.g. OSA/sleep apnea—the EMA recognized this effect in 2024), and Lilly is developing retatrutide (triple agonist) which has potentially even greater efficacy.

CagriSema as brand new GLP-1 product

CagriSema is Novo Nordisk’s next-generation obesity drug designed as a fixed-dose combination of two agents: semaglutide (a GLP-1 receptor agonist) and cagrilintide (a dual amylin and calcitonin receptor agonist). It is administered once weekly via subcutaneous injection.

In December 2024, the Phase III REDEFINE 1 trial showed CagriSema achieved a mean weight loss of 22.7% after 68 weeks in patients with obesity or overweight without type 2 diabetes, compared to 16.1% with semaglutide alone and 2.3% with placebo. While meeting its primary endpoint, the result fell short of Novo Nordisk’s initial 25% target.

The REDEFINE 2 trial in overweight or obese patients with type 2 diabetes showed a 15.7% weight loss with CagriSema over 68 weeks, which was viewed as less compelling relative to expectations and competing therapies like Eli Lilly’s tirzepatide (Zepbound).

Novo Nordisk announced plans for a new Phase III trial, REDEFINE 11, set to start in the first half of 2025. This longer, dose-escalation-focused trial aims to explore if higher or re-escalated doses can achieve greater weight loss, potentially surpassing prior results. Regulatory submission for approval is expected in the first half of 2026.

Despite underwhelming results compared to initial expectations, Novo Nordisk regards CagriSema as “one of the most substantial weight reductions observed in a Phase III trial” and sees potential for additional efficacy gains with longer treatment duration and optimized dosing.

CagriSema (Semaglutide + Cagrilintide) vs. Zepbound (Tirzepatide)

CagriSema is Novo Nordisk’s candidate combination of semaglutide (GLP-1 RA) and cagrilintide (amylin analog) in a single weekly injection. It’s in phase 3 research for obesity and diabetes and not yet on the market (expected filing after 2025). The semaglutide component falls under existing semaglutide patents (2031–2032), while cagrilintide is a new molecule protected until mid–2030s.

Tirzepatide (Lilly) is the sole competitor here, already launched as Mounjaro (diabetes) and Zepbound (obesity).

Usage, dosage & frequency

CagriSema is given once weekly by subcutaneous injection with a dual-chamber pen delivering 2.4 mg semaglutide + 2.4 mg cagrilintide. Like Wegovy, the dose is gradually increased to maintenance to minimize side effects.

Tirzepatide is also injected weekly, with stepwise titration to a max of 15 mg. Advantage of tirzepatide is being a single molecule, whereas CagriSema is a combination coming together only prior to injection.

Clinical effectiveness

In Phase III (REDEFINE studies), CagriSema showed ~22.7% weight loss (68 weeks) in obesity—a clear improvement over semaglutide alone (~16%), but short of Novo’s 25% target. In obese patients with diabetes, weight loss was ~14% after 68 weeks.

Tirzepatide achieves similar or higher results: ~21% weight loss at 72 weeks in obesity (without diabetes), ~15% in diabetics. Thus, so far, CagriSema has not clearly outperformed tirzepatide in direct or indirect comparison. Novo has announced it will test higher doses in an additional Phase III trial to try and achieve further weight loss.

Side effects

The semaglutide + amylin combo mostly brings gastrointestinal complaints, just like other incretins. Many participants reported nausea, vomiting, or constipation during titration. In CagriSema studies, side effects were similar to known GLP-1 effects, without new safety signals. Tirzepatide’s side effect profile is similar, with GI symptoms most common.

Results - CagriSema

Results - Tirzepatide (SURMOUNT 3)

Oral - Rybelsus (and Oral Semaglutide) vs. Orforglipron

Rybelsus is the world’s first and only oral GLP-1 agonist (semaglutide in tablet form). FDA approval was in September 2019. It shares the active molecule with Ozempic/Wegovy; semaglutide’s core patent expires in 2026, with expected market exclusivity into the early 2030s via additional patents. Rybelsus itself has unique formulation patents (e.g., co-formulation with the absorption enhancer SNAC), possibly securing exclusivity until 2031.

Novo Nordisk in 2023–2024 tested higher doses (25 mg and 50 mg) in Phase III for weight loss. The FDA is reviewing 25 mg oral semaglutide for chronic weight management (anticipated approval in 2025).

Eli Lilly currently has no oral GLP-1 product on the market. Lilly is developing an oral agent: orforglipron (a non-peptide oral GLP-1R agonist), in Phase III (expected launch ~2025–2026). That will be Lilly’s first oral rival; until then, Novo Nordisk has a monopoly in this segment.

Usage, dosage & frequency

Rybelsus is a tablet taken daily by mouth. Available strengths: 3 mg, 7 mg, 14 mg. Start at 3 mg daily (for 30 days), then 7 mg, possibly increased to 14 mg daily. Important: tablet must be taken on an empty stomach in the morning with little water, at least 30 minutes before breakfast. The empty-stomach instruction is necessary for absorption and is a minor disadvantage compared to injectables (which can be given regardless of meals).

Oral Semaglutide will be offered in 25mg and 50mg once-daily doses.

Lilly’s orforglipron (as far as known) will also be daily, but without such strict intake requirements (as it isn’t a peptide). Studies began with 1–3 mg/day, increasing to about 36 mg once daily as maintenance.

Clinical effectiveness

Oral semaglutide is somewhat less potent than the injectable version. In trials, Rybelsus 14 mg lowered HbA1c by ~1.1–1.4% (depending on comparator) and caused ~4–5 kg weight loss in type 2 diabetes. This is outdated since results from 25 mg and 50 mg oral semaglutide emerged.

A Phase III study in obesity showed oral Semaglutide 50 mg daily yielded an average ~17.4% weight loss over 68 weeks.

Lilly’s orforglipron delivered ~12.4% weight loss after 72 weeks in early studies – well behind Novo. Lilly’s results published August 7, 2025, led to a -10% drop in the stock market.

Overview results - Oral Semaglutide vs. Orforglipron

Results - Oral Semaglutide 25 mg

Results - Oral Semaglutide 50 mg

Results - Orforglipron 36 mg

Side effects

Rybelsus has side effects consistent with GLP-1: nausea, stomach upset, which diminish with up-titration. No unique adverse effects from the oral form except that high doses occasionally cause more stomach irritation (because of the SNAC excipient).

Competitive position

Novo Nordisk currently holds a unique advantage. Rybelsus is the only oral GLP-1, allowing Novo to attract patients who do not want injections. This boosted Novo’s market share in places like Japan and the EU (where Rybelsus grew, while in the US sales stagnated due to Ozempic’s focus).

Lilly is behind in this segment—Orforglipron will likely hit the market in about 2 years (if all goes well), meaning for the next 1–2 years Novo remains unrivaled in orals, a clear competitive edge. This may help support overall GLP-1 market share, as Novo can offer both injections and pills, tailored to patient preferences.

Additionally, the new 50mg semaglutide pill shows notably better results than Lilly’s Orforglipron, meaning Novo is likely to remain the market leader here for now.

Amycretin vs. Retatrutide

Amycretin is Novo’s newest dual-action candidate activating both the GLP-1 and amylin receptors. It’s still in development (Phase II finished); Phase III studies begin early 2026. Novo hopes to bring it to market before 2030. As amycretin is a new molecule, patents are likely to run to the 2040s.

Retatrutide is Eli Lilly’s “triple G” agonist (GLP-1, GIP, glucagon receptor) in development. Phase II results (2023) were promising and Phase III is ongoing; launch expected around 2027–2028 if all goes well. Lilly says the retatrutide patent likely runs several years after tirzepatide’s (possibly late 2030s).

Usage, dosage & frequency

Both are injectable agents designed for weekly administration. Amycretin has, so far, been tested as a weekly subcutaneous injection (e.g. 20mg or 60mg per week), also in a test oral daily form. In the Phase II study, patients got weekly injections, with 20mg and 60mg as highest doses.

Retatrutide is also given weekly; in Phase II, doses of 4mg, 8mg, and 12mg per week were evaluated, with the highest dose most effective. Both drugs will be available as pen injections, similar to current GLP-1s.

Clinical effectiveness

Amycretin showed impressive results in early trials: 22% weight loss at 36 weeks (20mg/week), up to 24.3% at 60mg/week. Notably, weight loss did not plateau after 36 weeks, suggesting longer therapy could lead to even greater reduction.

Lilly’s retatrutide showed ~24% weight loss over 48 weeks at 12mg/week in Phase II. Some subjects lost 30%+ of weight within ~8 months on retatrutide, though there were questions about the safety of such rapid weight loss.

Besides weight, amycretin improves glycemia (also being tested in diabetes), and retatrutide showed strong HbA1c and fat mass reductions. In short, both are “next generation” obesity drugs with groundbreaking effectiveness.

Additionally, Novo has licensed its own triple-agonist (UBT251), targeting GLP-1/GIP/glucagon; in a mid-stage study, UBT251 achieved ~24% weight loss after 48 weeks—comparable to retatrutide.

Side effects

Novo reported safety consistent with incretin therapies, mainly GI symptoms. Extra amylin agonism can cause nausea since amylin also stimulates the satiety center—this effect is pronounced but manageable via dose escalation.

Retatrutide’s triple action brings, beyond GLP-1/GIP effects, glucagon receptor agonism, which raises metabolism but can potentially cause side effects like increased heart rate, mild blood pressure rise, or elevated enzymes. In Phase II publication, GI symptoms (nausea ~30%, diarrhea) were most common, as is typical for GLP-1s. A few patients on high-dose retatrutide had temporary heart rate increases and a catabolic feeling (glucagon effect).

Further optionality with GLP-1

The story doesn’t end with CagriSema because GLP-1 drugs have shown promise beyond diabetes and obesity.

Dopamine pathways evolved to help us survive - simplistically, food and sex trigger a dopamine hit in the brain. It feels good, so we do it again. Dopamine also explains addictions to nicotine and alcohol. GLP-1s influence neurological impulses and dopamine pathways, helping users suppress some of these cravings - so these miracle drugs may be capable of helping people quit drinking and smoking.

There’s more - these medications have even proven effective at tackling heart failure according to a pair of studies published in The Lancet and The New England Journal of Medicine. HFpEF (heart failure with preserved ejection fraction), stiffens the heart muscle and stops it from filling with blood properly - it affects more than half of patients with heart failure. Once patients with HFpEF are hospitalized for heart failure, their five-year mortality can be as high as 65 percent. These studies found that heart failure hospitalizations for those taking the GLP-1 went down by 70 percent - these kinds of success rates are unheard of in clinical trials.

GLP-1s may also be able to treat other conditions with trials ongoing, focused on non-alcoholic steatohepatitis (NASH) otherwise known as non-alcoholic fatty liver disease (NAFLD), chronic kidney disease, sleep apnea, metabolic dysfunction-associated steatohepatitis (MASH), hempophilia, sickle cell disease and even Alzheimer’s.

We also are building the cardiovascular, liver and kidney-related pipeline, where we again see progress in both Phases I, II and III. And given that we defined that focus area only a couple of years ago, it’s gratifying to see that level of clinical activity at this point in time. And finally, obviously, we are super happy with the progress that we’re also doing in rare disease, specifically in the hemophilia space, but we also now see progress of our sickle cell disease assets, which obviously again speaks to a disease area with a huge unmet need.
Martin Holst Lange

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How sticky are people to it?

No less than 68% stops within a year. Over time, these percentages should be able to decrease because some of the reasons why people stop will become less relevant. Here are the main reasons for stopping:

• Side effects (nausea, vomiting, and diarrhea).

• Costs are no longer covered by the insurer. For example, insurers in the US have stopped covering due to high costs. Or if you change jobs and the new employer’s insurer does not cover it. Currently, only 50 million people are (partially) covered in the US.

• Stopping after successful weight loss (although this often leads to weight gain and possibly new treatments in the future).

• Shortages of medication forcing patients to stop or switch to an alternative.
  

  

The previous GLP-1 drug Saxenda, which has been on the market for 10 years, has a much higher discontinuation rate. Only 21% lasted a year. This is despite being no shortages.

Diabetes market – Novo is market leader for years

463 million people in the world had diabetes in 2019. This grew to 537 million in 2021 - about 10% of adults and followed by a strong growth of 7.5% per year. The expectation is that by 2030, 643 million people will have diabetes. That represents a growth of 2% per year.

This group has a life expectancy that is 8 years shorter than average. About 30% of this group suffers from cardiovascular diseases, and 40% have kidney problems. Strong reasons why part of this group greatly benefits from GLP-1 medicines, as these reduce the risk of additional diseases and premature death.

Below is the distribution and future growth of diabetes:

Treated by Novo

Novo provides an annual overview of the number of people they treat. From 32.8 million in 2022 to 43 million in 2024. That is growth of about 7% per year — faster compared to the growth of the total patient population per year. This makes sense; they currently only cover an estimated 7.5%(!) market share of the total TAM.

Market volume - Diabetes

Current market volume is 523 billion DKK.

Looking back, we saw 5% and 3% growth in 2020 and 2021, followed by 25% and 17% growth in 2022 and 2023 due to the use of diabetes medicines for weight reduction. With the introduction of specific weight-loss drugs, this growth rate is not expected to continue in the future (although Ozempic remains an important brand linked to weight loss).

Market share - Diabetes

Novo is market leader in the overall diabetes market with a market share of 32,6%. In addition, market share has been growing sequentially in 2022 and 2023, but is currently going down due to increased competition of Eli Lilly.

Eli Lilly currently has 26% and Sanofi has 17% market share.

GLP-1 market – Still market leader, but decreasing share

In its GLP-1 franchise - led by the revolutionary semaglutide – Novo commands roughly 55% of the worldwide GLP-1 market in an oligopoly together with Eli Lilly (45%).

The growth opportunities within diabetes are significant. GLP has a worldwide penetration of only 6% within the diabetes population (17% in the US). This low percentage is mainly due to shortages or hesitation from patients and doctors.

Obesity market - Small portion currently taken…

According to studies that Novo reflects on, there are 934 million people worldwide with obesity. This number is expected to grow to 1.246 billion by 2030. That is a growth of about 7% per year (!).

Of those 934 million, only 2,2 million people (!) are currently (2024) treated with a Branded Anti-Obesity Medication (BAOM).

This has a few reasons:

• Many people with obesity don’t meet the specific criteria for prescription of branded drugs, since many BAOMs are approved only if a person has a Body Mass Index (BMI) above a certain threshold of around 30 kg/m².

• Many health insurance plans across the world do not cover anti‐obesity medications or cover them only under very limited circumstances.

• In many parts of the world the drugs are yet to be approved or reimbursed, or the drugs are not available at scale.

A significant two-stage rocket; on one hand >97% of the market is still untapped, and on the other hand, it is a rapidly growing market.

Market volume - Obesity

Due to this low untapped market, the market volume is quite limited nowadays with a total of 228,1 billion DKK in 2025 but is growing with significant numbers – 142% YoY from Q2 2024 to Q2 2025!

Market Share - Obesity

57% market share in May 2025. But market share is decreasing since they lose a lot of territory to Eli Lilly. Eli Lilly has rapidly expanded its global footprint beyond the United States, gaining ground in international markets with aggressive launches and increasing access. In fast-growing emerging markets such as India, Eli Lilly is competing head-to-head with Novo Nordisk for market share.

Let’s dive a bit deeper in the market shares.

Market Shares – A structural decline of all segments in past years

Global Diabetes market

First, the entire Diabetes market. Novo has been the global market leader in this large market for many years, with market share fluctuating between 30% and 35%. Since 2022, Eli Lilly has gained a small amount of market share; partly from Novo and partly from Sanofi. It has also taken market share from smaller players. In practice, this means stable growth from 21% in H1 2022 to 28% in H2 2025. Novo has gone from 34% to 32.6% market share in just one year.

Global GLP-1 market

Here, Novo is not only the market leader but also holds more than 50% of the market! Nevertheless, there is a noticeable decline, from 56.1% in Q2 2024 to 51.9% in Q2 2025 – in just one year. The US plays a role in this, but the significant declines are especially seen in the International Operations segment.

Global Insulin market

Novo is market leader as well, though a structural decline is visible. It is less pronounced than in other segments; from 47% in 2022 to 43.3% in Q2 2025.

Global Obesity market

The most dramatic drop in market share can be seen in the Obesity market. In the revenue numbers, this isn’t fully visible yet due to extremely strong market growth (which means Novo’s turnover was still growing in Q2 2025). However, underneath the surface, the figures are striking: market share declined from 80% in Q4 2024 to 57% in Q2 2025 – a reduction of 23%(!) in just one year!
The market is growing at absurd rates, with year-on-year growth above 100%, so there is still growth possible for Novo in absolute terms.

Q4 2024 was the first quarter in which competitors added more revenue year-on-year than Novo.

This is clear at the product level as well. Outside the US, Ozempic was completely overtaken by Mounjaro in Q2 2025, dropping from 53% to 41% market share in just one quarter. In the US itself, from 54% down to 47%.

In the US, we see similar behavior for Zepbound compared to Wegovy; from 41% to 34% market share in just one quarter. Novo still holds 100% market share outside the US.

When both product categories are combined, we see that Lilly has taken over the market leader position in Q2 2025, with Novo at 44% and Lilly at 56%.

Production capacity constraints – How did Novo (and Lilly) solve it?

What sets Novo apart operationally is its vertically integrated supply chain controlling every stage of production, from raw materials to finished products. This integration strengthens its competitive position by reducing dependency on external suppliers and has been achieved over years of organic growth augmented with complex and costly acquisitions. This manufacturing process is a key strength because producing complex biologics like semaglutide at scale is a feat few rivals can match.

Before we discuss the production constraints, let’s look briefly at the Supply Chain elements of Novo Nordisk:

Research & Development

Novo Nordisk conducts the bulk of its research in-house, with major R&D centers in Denmark (Bagsværd headquarters and Måløv) and specialized centers abroad (e.g. Seattle, US for obesity and biopharm research). This in-house R&D yielded semaglutide’s discovery and development. Novo also collaborates with academia and biotech firms for innovation (examples: partnerships with MIT on RNAi delivery, acquisitions like Dicerna for RNAi, and an alliance with Emisphere to develop oral semaglutide’s absorption technology).

By keeping R&D closely tied to production, Novo can smoothly tech-transfer new molecules into manufacturing. The company’s vertically integrated model means it often owns the intellectual property and the production know-how, unlike many pharma companies that heavily outsource early development. This has allowed Novo to optimize the engineering of biologic production organisms (e.g. the yeast for semaglutide) alongside drug design.

Active Pharmaceutical Ingredient (API) production

Novo Nordisk is unique in that it manufactures nearly all its own API for insulin and GLP-1 drugs. Semaglutide is produced via recombinant biotech methods – Novo uses engineered Saccharomyces cerevisiae yeast to ferment the GLP-1 peptide, then purifies and chemically modifies it (attaching an acyl chain). The primary API production hub is Kalundborg, Denmark, a sprawling site often called Novo’s “industrial backbone.” Kalundborg hosts large-scale fermenters and purification facilities that have been expanded to produce semaglutide in addition to insulin.

In 2022 Novo invested ~$6 billion to expand API capacity here, specifically citing semaglutide needs. Another key API site is Clayton, North Carolina (USA) – Novo opened a plant there in 2019 to make active ingredients for diabetes drugs.

Novo also has API production in Montes Claros, Brazil (mainly insulin) and Tianjin, China (insulin API for Asia), though for GLP-1 the Western facilities carry most load.

Novo Nordisk’s subsidiary Novo Nordisk Pharmatech A/S (in Køge, DK) produces certain raw materials and auxiliary ingredients – for example, it manufactures recombinant enzymes and specialty chemicals used in Novo’s biologics production. Overall, owning API production allows Novo to safeguard against supply disruptions and scale up quickly - as seen by their rapid output increase in 2023–24 which we will discuss a bit later.

Fill-finish and device manufacturing

After API is produced (as bulk drug substance), Novo conducts formulation, filling into injection devices, and assembly/packaging largely in-house. A major facility for this is in Hillerød, Denmark, where Novo has a high-tech plant focusing on assembling its signature injection pens for diabetes and obesity drugs. Novo’s devices (e.g. FlexTouch pens for insulin, the single-use Wegovy pen) are manufactured and assembled here – the site was described as “cranking out injection pens for chronic diseases”.

For U.S. supply, Novo has a fill-finish site at Clayton, NC as well, which currently fills Ozempic pens and will fill Wegovy. Recognizing capacity needs, Novo is constructing a second fill-finish facility at Clayton (1.4 million sq ft) which will effectively match the combined size of Novo’s three current NC plants. This new plant (completion around 2026) will significantly boost pen filling and cartridge filling capacity for Ozempic and Wegovy.

Beyond drug vials/pens, device component sourcing is also carefully managed. Novo often designs devices in-house (e.g. the NovoPen and FlexPen technologies) but may outsource manufacturing of some components to specialized firms (for example, polycarbonate pen shells or needles). However, final assembly and packaging is done at Novo’s facilities to maintain tight control. The company’s end-to-end ownership of device production has been key for quality and also for iterative improvements (like moving from daily to weekly injection devices).

Packaging & labeling

Once filled, products are packaged into finished cartons with patient instructions. Novo operates packaging lines at its production sites (Denmark, US) and also at regional distribution centers. For instance, Novo’s U.S. packaging and warehouse center is in Plainsboro, NJ (also the US headquarters). There, products arriving from Denmark or NC can get final labeling for the U.S. market. Internationally, Novo might ship bulk product to local affiliates for packaging in local languages. The supply chain is globally coordinated such that drugs are manufactured in a few strategic sites but then distributed worldwide.

Novo recently partnered with logistic firms to enable more decentralized distribution; for example, a ‘Global Supply, Local Distribution’ model was implemented where two separate warehouse hubs serve different global regions to speed up deliveries.

Quality control and compliance

Vertical integration means Novo also handles its own quality testing at each stage. The new QC ‘mega lab’ being built in Denmark will centralize a lot of product testing under one roof. Each manufacturing site has onsite QC labs as well. Novo must also comply with various regulations like FDA’s DSCSA (track-and-trace); the company maintains an Authorized Trading Partners portal for U.S. distribution compliance. Being vertically integrated makes it easier for Novo to implement rigorous quality systems across the entire chain (from raw material to finished pen), which is crucial for biologics like semaglutide.

Logistics and cold chain distribution

Given that Ozempic and Wegovy are peptides that require refrigeration, Novo Nordisk’s supply chain emphasizes cold-chain logistics. Novo has strategic partnerships with global logistics providers. Notably, in 2021 Novo Nordisk signed a deal with A.P. Møller–Maersk to handle its worldwide cold-chain shipping. Under this agreement, Maersk manages end-to-end transport of Novo’s medicines (via air and sea freight) in temperature-controlled containers. Likewise, Novo works with Kuehne Nagel, another large logistics firm, including on sustainable fuel initiatives for air freight. In the U.S., Novo uses major parcel carriers (UPS, FedEx) for delivering products from distribution centers to pharmacies (and now to patients via NovoCare).

The U.S. distribution network typically flows from Novo’s U.S. warehouse to the “Big Three” pharmaceutical wholesalers: McKesson, AmerisourceBergen, and Cardinal Health. Those wholesalers then supply retail pharmacies such as CVS, Walgreens, Walmart, etc., mail-order pharmacies, and hospital pharmacies with Novo’s products. For specialty drugs like Wegovy, Novo initially limited distribution to certain specialty pharmacies due to supply. In 2022, Wegovy was mainly available via CVS Specialty and others, to manage allocation during shortages. As of 2025, with supply normalized, Wegovy and Ozempic are available through most retail and specialty pharmacy channels.

Back to the production capacity constraints – How did Novo (and Lilly) solve this?

Both companies faced temporary supply shortages as demand outpaced production in 2023. Novo Nordisk had to limit Wegovy supplies for much of 2022 and 2023, and certain Ozempic dose pens were intermittently backordered. Eli Lilly’s Mounjaro, after its mid-2022 launch for diabetes, also saw struggles with supply constraints going back to 2022, especially for higher doses. By mid-2023, surging demand led to tight supplies of Mounjaro’s 10 mg dose through at least Q3 2023.

Historically, Novo’s capital needs were modest, with manufacturing costs a small fraction of sales. But in 2024, capital expenditures rose to DKK 47.2 billion to meet skyrocketing demand.

Key initiatives of Novo Nordisk include:

New plants

Novo is building a second fill-finish facility in Clayton, North Carolina with a USD 4.1 billion investment. This massive site of 1.4 million sq ft will finish Ozempic/Wegovy and effectively doubles Novo’s US fill-finish footprint. In Denmark, Novo is constructing a 700,000 sq ft API production facility in Hillerød (ready by 2029) to make active ingredients for future products, and a new USD 409 million quality control lab there to support expanded output. Novo also announced a DKK 42 billion expansion of its Kalundborg, Denmark facilities – mainly to boost active semaglutide API capacity, given Kalundborg’s role as a flagship API site for insulins and GLP-1s. Additionally, Novo’s Pharmatech unit is spending DKK 1.5 billion on a new plant in Køge, Denmark to produce raw materials for Ozempic/Wegovy by 2027.

Acquisitions

To rapidly augment capacity, Novo Nordisk’s parent (Novo Holdings) moved to acquire Catalent, a major contract manufacturer. The USD 16.5 billion deal, closed at the end of 2024, will transfer three key Catalent factories to Novo Nordisk for about USD 11.5 billion. This gives Novo in-house control of critical fill-finish sites needed for semaglutide production. An analyst noted this could substantially increase semaglutide fill/finish capacity in the US. Indeed, acquiring these sites (reportedly including Catalent’s Bloomington, IN facility and others) is a massive strategic win that Novo says will help end Wegovy/Ozempic shortages. Novo also bought a biologics plant in Czech Republic from Novavax in 2024, adding further capacity (though Novo stated that site will not be used for semaglutide products).

Key initiatives of Eli Lilly include:

Eli Lilly has similarly poured resources into manufacturing to support tirzepatide (Mounjaro/Zepbound) and its pipeline. Lilly is building a massive new API facility in Lebanon, Indiana as part of a sprawling ‘LEAP’ innovation campus. In May 2024, Lilly doubled its investment in this site – now USD 9 billion – specifically to produce tirzepatide’s active ingredient at scale. This is touted as the largest-ever investment in synthetic drug API manufacturing in the U.S. The Indiana plant will ensure Lilly can supply at least 50% more sellable doses of Mounjaro/Zepbound in late 2024 vs. 2023.

Since 2020, Lilly has committed over USD 18 billion globally to manufacturing expansion. This includes new sites in Research Triangle Park and Concord, NC; Limerick, Ireland; and Alzey, Germany, as well as USD 1.2 billion in upgrades to its Indianapolis facilities. Lilly even acquired an injectables plant in Wisconsin (Pleasant Prairie) to expand its fill-finish capacity. Internationally, Lilly is expanding in Suzhou, China – investing USD 200 million to upgrade its site to produce tirzepatide for China and Europe, following Chinese approvals for diabetes and obesity. By late 2024, Lilly also began constructing a USD 4.5 billion ‘Medicine Foundry’, which is a combined R&D and manufacturing center, adjacent to its Indiana API plant, further cementing long-term capacity.

As a results, supply chain constraints are solved

Thanks to the investments of Novo, Novo Nordisk announced by late 2024 that all doses of Wegovy were fully available in the U.S., signaling an end to the persistent supply shortages. The FDA removed Wegovy from its drug shortage list after production caught up. Novo’s semaglutide products are now deemed commercially available at scale.

By October 2024 the FDA also declared all tirzepatide doses (for both Mounjaro and Zepbound) available and resolved the shortage. In fact, Lilly’s CEO confidently projected that with new lines coming online, 2025 output for Mounjaro/Zepbound will be 50+% higher than 2023. Thus, heading into 2025, the supply crunch for both semaglutide and tirzepatide has eased, thanks to these aggressive capacity expansions.

Compounding – What happened exactly?

A major headwind for Novo Nordisk (and, to a lesser extent, Lilly) has been the phenomenon of compounding: U.S. pharmacies preparing their own GLP-1 medications (compounding) with imported active ingredients, bypassing the manufacturers. This led to a “copycat market” of semaglutide- and tirzepatide-containing products.

Timeline of major moments around the compounding issue

• 2021 - 2022: Explosive demand for Novo’s Wegovy (semaglutide 2.4 mg) led to product shortages. At the end of 2021 and throughout 2022, Novo faced supply problems due to unexpectedly high demand and production limits. This opened the door for compounders. Pharmacists began preparing semaglutide solutions for weight loss, sometimes sourcing semaglutide sodium (a salt form not strictly FDA-approved) as a raw ingredient.

• H1 2023: Compounding becomes more widely known. Social media and telehealth startups promote “custom weight loss shots” which actually contain unauthorized semaglutide. The FDA permits compounding when a drug is on the official shortage list. Both semaglutide and tirzepatide were on that list early 2023 because of supply problems, making it legal for pharmacies to compound these drugs temporarily. The FDA begins worrying about safety and warns consumers about compounded semaglutide (first warning in July 2023).

• October 2024: Lilly announces tirzepatide shortage is resolved and the FDA removes tirzepatide from the shortage list. A few months later, the FDA declares the Semaglutide shortage solved. According to regulations, this means compounding should stop. However, a group of compound pharmacies (Outsourcing Facilities Association) sues the FDA, arguing the shortage was ended too early and the unmet demand persists. They seek an injunction to allow continued compounding.

• Late 2024: Escalation. In October 2024, the FDA issues a public warning letter to patients and doctors not to use compounded semaglutide. The warning highlights these compounded preparations are not tested or approved and carry risks. In early November 2024, the FDA announces enforcement plans with deadlines to end compounding. Meanwhile, Novo Nordisk launches its legal offensive: by 2023/2024, Novo has already filed dozens of lawsuits against compounding clinics, and this gains attention in the media in 2024. Lilly follows suit. By the end of 2024, first court rulings confirm compounding is not protected now there is officially no shortage.

• March 2025: Enforcement breakthrough: a federal judge rejects the compounders’ requested injunction and allows the FDA ban on compounding to proceed. The FDA announces deadlines:

  • Compounding tirzepatide: immediate stop for state-licensed pharmacies, deadline of March 19, 2025 for larger outsourcing facilities.

  • Compounding semaglutide: stop by April 22, 2025 for local pharmacies and May 22, 2025 for large compounders (or earlier if a judge rules sooner).
    After these dates, compounding is officially illegal except in rare cases.

• H1 2025: Despite looming bans, compounding continues at a large scale through spring. Estimates show a significant share of American patients now use compounded GLP-1s. Novo and Lilly take this seriously. In May 2025, Novo’s CEO Lars Jørgensen stated that “the copycat market is as large as our own obesity business.” Analysts estimate up to 30% of U.S. GLP-1 users now take unauthorized compounded versions – especially in obesity, as many cannot or will not pay USD 1,300 per month for Wegovy, resorting to cheaper compounders. Novo’s CFO confirmed that “compounded versions of Wegovy were sold at a much lower price point,” creating substantial competition.

• H2 2025: Active enforcement begins. The FDA sends letters and threatens sanctions to violators. Novo Nordisk steps up legal actions: on August 5, 2025 Novo reports it has filed over 130 lawsuits in 40 states against sellers of illegal semaglutide copies. Judges have issued 44 permanent bans against such parties. The FDA itself released an alert in July 2025 warning of serious risk from compounded GLP-1s such as examples where overdoses occurred with patients receiving multiple times intended dose due to dosing errors.

Stakeholders of compounding: who makes and who offers it?

The compounding ecosystem involves multiple layers of parties:

API producers (raw material)

The active ingredients (semaglutide, tirzepatide) for compounding are often imported, mainly from China. A Brookings report showed that 60% of the Chinese manufacturers who export Semaglutide API do not even have permission to use that substance in medicines within China. In other words, dubious factories in China produce synthetic semaglutide of uncertain quality and sell it through intermediaries. All semaglutide imported for compounding since June 2023 came from Chinese suppliers. This illustrates that the supply chain operates outside regulated pharmaceutical channels. For tirzepatide, the situation is similar, although that molecule is more complex; there are reports that tirzepatide powder is also available via China.

Compounding pharmacies & clinics

In the U.S., there are state-licensed compounding pharmacies and larger outsourcing facilities. They purchase the raw API and manufacture injectable solutions or sometimes oral drops/pills. This occurs without FDA oversight. Some names that have appeared in lawsuits are Empower Pharmacy and Strive Pharmacy - large compounders working nationally. Additionally, there are local pharmacies that make individual magistral preparations. They often operate in tandem with telehealth clinics. Their marketing trick was to claim these were personalized medicines tailored to the patient. In reality, these were standard knockoffs of Wegovy/Ozempic, just unapproved. They violate various laws (including FDA approval laws and sometimes state laws against corporate practice of medicine - meaning non-physicians directing treatment).

Telehealth platforms and online clinics

This is the newest link that enabled the explosion. Some named companies are Hims, Fella Health, Henry Meds, Mochi Health, Ro, Ageless, etc. These platforms often employ doctors who assess the patient via online consultation and then write a prescription for the compounded drug, usually directly filled at a partner pharmacy. Lilly’s lawsuit claims these telehealth companies actively steer patients away from FDA-approved options toward their own cheaper compounded drugs under false pretenses. Their interest is financial: they often charged subscription fees and profited from compound sales. In short, telehealth provided scale: aggressive online marketing reached hundreds of thousands of consumers across the U.S., outside the traditional healthcare system.

Patients - consumers

Naturally key stakeholders - why did they choose this route? Two reasons:

1. Availability - long waiting lists for Wegovy or doctors unwilling to prescribe; compounded versions were easier to obtain via simple online questionnaires.

2. Price - compounded versions often cost between USD 300 and USD 500 per month, significantly cheaper compared to the USD 1300 list price. Many saw it as a way out: the same active ingredient for a fraction of the price. This created high demand for these alternatives.

However, patients are also victims: they had less oversight and potentially unsafe products (overdose incidents, variable quality). The FDA warned that such compounds have not been assessed for efficacy or safety and carry risks.

Government & regulators

As stakeholders in the sense that they are parties influenced: The FDA and state boards of pharmacy try to protect public health. The FDA was criticized for a slow response, but eventually took a clear stance against this practice and, in cooperation with Justice, started enforcing the rules in 2025. Politics has also become involved through hearings.

Impact on Novo & Eli Lilly: How much volume do Novo and Lilly lose due to Compounding?

The compounders made copies of both semaglutide (Novo’s product) and tirzepatide (Lilly’s). However, by far the majority of the copycat products involved semaglutide (Ozempic/Wegovy). There are several reasons for this:

• Semaglutide was earlier widespread and better known. Ozempic has been on the market since 2018, Wegovy since 2021. The public and doctors became familiar with Ozempic as a concept. Tirzepatide (Mounjaro) only came mid-2022 and was initially only for diabetes (though much off-label use for obesity did happen). Compounders mainly capitalized on the hype around Ozempic for weight loss - Semaglutide was a known name, easy to sell to consumers. The term ‘Ozempic compound’ circulated, even though Wegovy is the obesity brand.

• Price of Semaglutide were more pronounced: Wegovy was almost never reimbursed, making all obesity use cash-pay. This encouraged people to take cheaper compound alternatives. Mounjaro was partially reimbursed by insurers (for diabetes), and Lilly offered substantial coupons in 2022 and 2023. Therefore, the need for diabetes patients to seek illegal tirzepatide was smaller. They could get Mounjaro via insurance or coupon for USD 25.

• Complexity: Tirzepatide is a larger, more complex peptide. It is possibly harder (or more expensive) to synthesize. Although Chinese labs offer it, semaglutide has probably been more widely available since it is a known molecule since 2017. This would lower the barrier for semaglutide compounds. Prices of compounded preparations reflected this: so-called ‘compounded tirzepatide’ injections were often more expensive than Semaglutide alternatives, but still cheaper than the branded Mounjaro.

• Still, Lilly is not immune: tirzepatide was compounded on a large scale too. Lilly indicated tirzepatide was on the shortage list for 2 years, allowing compounding, and some pharmacies continued after the shortage ended in December 2024. Lilly filed lawsuits over this to for example Empower and Strive Pharmacy - who kept selling tirzepatide despite bans.

• Interestingly, Lilly proactively tried to prevent compounding: they made deals with telehealth partners to halt compound sales. However, in June 2025 research showed some telehealths continued compounds by other means. Lilly responded with lawsuits. That Lilly used such contractual tactics suggests they already had influence over telehealth distribution of official Zepbound behind the scenes. They demanded: if you want to offer our product, then no more copycats. This shows Lilly’s management saw the problem and tried immediately to limit potential market loss.

Actions by Novo Nordisk and Eli Lilly to solve the problem

Both companies have taken unprecedentedly aggressive steps to tackle compounding, using legal, commercial, and educational approaches.

Novo Nordisk’s actions:

• Legal battle: Novo has opened a true legal campaign. They started suing some compounders in 2023 and intensified this in 2024 and 2025. As mentioned, by August 2025 Novo had filed 132 lawsuits in 40 states. On August 5, they announced 14 new lawsuits against organizations illegally offering semaglutide compounds. They target both compounding pharmacies and telehealth companies.

• Novo has had successes: courts issued 44 permanent injunctions against certain compounders. These prohibitions order them to stop unlawful compounding and misleading claims. Courts even forced offenders to hand over illegally earned profits, which serves as a deterrent to others. Novo’s strategy is to wear down the practice through litigation, and with results: dozens of providers had to cease operations.

• Collaboration with regulators: Novo actively lobbies the FDA and state governments to encourage enforcement. They openly praise FDA warnings (for example, an FDA alert from July 29, 2025 about compound risks is cited in Novo’s press releases). Novo’s US VP Dave Moore urged regulators to enforce public health laws to protect patients. In sum, Novo exerts pressure in Washington and State Boards of Pharmacy to enforce strict actions.

• Education and warnings: Novo runs a public campaign about risks. They emphasize that “patients deserve safe, effective treatments from trusted companies, and should not gamble with their health via counterfeit drugs.” This narrative is shared in press releases and likely through doctor visits. They have also instructed their salesforce to educate physicians and insurers about dangers of compounded drugs such as overdose and lack of quality control. Novo wants to keep trust in official medicines high and stigmatize compounds as potentially dangerous.

• Commercial measures; own distribution & pricing: Novo recognized that one reason for compounds was high prices. In response, they launched the NovoCare Direct-to-Consumer platform in March 2025. Through this, patients without good insurance can buy Wegovy directly from Novo at a reduced rate. As of August 2025, Novo considered expanding this cash sales model to other markets. They also expanded cash-pay options in the US: early 2025 about 4% of Wegovy prescriptions were cash, now about 10%. Novo facilitates this with coupons or direct sales channels to lower the barrier and keep people away from compounders.

• Additionally, Novo is ramping up production to prevent shortages. In H1 2023 supply constraints drove compounding; Novo invested heavily in new manufacturing capacity (including new plants in the US and Denmark, plus contract manufacturing) to meet demand and be able to say “there is no shortage, so you don’t need to use compounders.”

• Novo said they might consider selling directly to patients outside the regular pharmacy. This is unusual, but the idea is if insurers won’t pay, let patients buy directly from Novo at a reasonable price - better to accept lower margin than lose the entire patient to compounders. This concept is being explored in 2025.

Eli Lilly’s actions:

• Legal Steps (since 2023 / 2024): Like Novo, Lilly took the legal path. Initially, Lilly focused on compounding pharmacies. They filed cases against Empower and others for compounding tirzepatide. In April 2025, Lilly shifted focus to telehealth companies: on June 13, 2025, law firm Holland & Knight announced Lilly sued four telehealth firms for selling illegal copies of Mounjaro/Zepbound. Lilly argues similarly to Novo: misleading advertising, unfair trade practices, exploiting Lilly’s brand without a license. Lilly’s goal is clear: drag both compounding pharmacies and online referrers to court to stop them. Lilly admits legal proceedings can be lengthy but aims to send a message about the risks of large claims.

• Collaboration & contractual intervention: Lilly chose a smart tactic by working with telehealth platforms on condition they cease compound sales. In June 2023, Lilly made deals with large platforms (like Ro, Calibrate, etc.) to distribute Zepbound/Mounjaro via them, provided no compounded GLP-1s were offered. This forced many telehealth companies to choose: cooperate with Lilly (access to official product and customer base) or continue with compounds but be cut off from official distribution. Some platforms agreed and stopped compounds in exchange for partnership. However, when it appeared some continued secretly (e.g., adding vitamin B12 to semaglutide and renaming), Lilly filed lawsuits in April 2025. Still, this shows Lilly actively engaged with the distribution chain.

• Scaling official access: Like Novo, Lilly ensured official medications are easier to obtain. They ramped up Mounjaro production strongly in 2023, resolving shortages by year-end. This removes the need for compounders. After FDA approval of Zepbound in November 2023, Lilly made it quickly available through specialty pharmacies. They also work on broader insurance coverage for obesity (including trials for sleep apnea to reinforce medical necessity). The more patients helped formally, the less leakage to the grey market. Lilly also provides direct patient savings programs—for example, a direct-buy option for uninsured patients via a platform (with Anthem) at a reduced rate. This resembles Novo’s approach: setting up a controlled channel to divert price-sensitive consumers from illegal alternatives.

Outlook: Will compounding remain important in H2 2025 and 2026?

The compounding issue is now declining rapidly in the second half of 2025 and is expected to become marginal in 2026.

Thanks to the actions described, the heyday of large-scale compounding is over. The FDA has the legal basis to intervene. Deadlines in March/April 2025 forced most serious parties to stop, and since September 2025 the FDA has escalated with warning letters, seizures of illegal API shipments, and coordinated actions with the Department of Justice. In its November 5, 2025 Q3 report, Novo Nordisk stated that the impact of compounded semaglutide is now “materially lower than assumed three months ago” and that the company sees a clear path to the copycat market becoming negligible in 2026.

A full disappearance will still take a little more time. Driving factors — high list prices and pockets of uncovered patients — remain. A few rogue providers continue to seek workarounds (e.g., mixing semaglutide with vitamins and labeling it differently, or sourcing from overseas), and there will always be some “cowboy” clinics willing to take the risk for profit and patients willing to accept lower safety standards for a cheaper price.

For the mainstream market, however, the risk has become prohibitive: compounders now face active lawsuits from both Novo and Lilly, permanent injunctions, and FDA sanctions that include criminal referrals. Most large telehealth platforms and outsourcing facilities have exited the category entirely in Q3/Q4 2025. Novo and Lilly have also resolved all supply constraints, and both companies are heading into 2026 with the prospect of oversupply rather than shortage, removing the last legal and practical justification for compounding.

In H2 2025, Novo is already regaining patients faster than previously expected. US Wegovy scripts in September and October 2025 were the highest on record, driven in large part by former compound users switching to the branded product. The temporary patient drop-off that management feared in August has proven smaller and shorter-lived than anticipated.

For 2026, the legal, enforcement, and supply environment points to compounding becoming a fringe phenomenon rather than a material headwind. Remaining volume is likely to be limited to a small grey-market segment that both Novo and the FDA appear determined to extinguish through continued litigation and import controls. As a result, the base-case assumption for 2026 and beyond is that compounded GLP-1s will no longer be a meaningful drag on branded sales or pricing power.

US Pricing Situation – What can we expect?

In the U.S., there is a large gap between the list price which is the pharmacy price without discounts and the net price which is the manufacturer revenue after discounts. This results from the system involving health insurers and Pharmacy Benefit Managers (PBMs) who negotiate substantial rebates in exchange for placement on formularies. For diabetes medications (traditionally a competitive field), discounts can reach 50% or more. For new obesity medications, the situation differs somewhat: initially few insurers covered these drugs, so much of the sales were cash-pay without discounts. But that is beginning to change, with more insurers partly covering Wegovy in exchange for discounts.

Novo Nordisk’s CEO Lars Jørgensen noted that many Americans with insurance often pay only USD 25 out-of-pocket for Ozempic. The rest is paid by the insurer, which ultimately means Novo grants discounts to the insurer. Senator Sanders rightly pointed out this results in higher premiums - the costs do not disappear but are passed on elsewhere. But it illustrates that the USD 969 list price rarely fully reaches Novo per pen. Novo’s gross-to-net adjustment (discounts, returns, etc.) for the US is estimated by analysts to be around 30 - 40% for Ozempic. For Wegovy, it was lower initially because rebates and coverage were limited, but now that they are fighting for coverage, they offer significant discount deals.

An illustrative example: Suppose Ozempic’s list price is USD 969. After a typical rebate of about 50% for Medicare/commercial PBMs, the net price falls to USD 485. For Wegovy, which is less broadly covered, the net price may have been higher initially, but Novo had to make a deal in 2023 with Express Scripts (Cigna’s PBM) to include Wegovy in their formulary, undoubtedly at a substantial discount.

Additionally, Novo’s revenue mix in the US is about 72% revenue vs. about 50% volume, indicating net prices in the US remain higher than international levels, but not literally ten times higher.

What forces are at play?

It is unlikely federal legislation on pricing will pass in 2025 or 2026, as Congress is divided. However, administrative pressure - for instance, the FDA demanding more transparency or Medicare prioritizing GLP-1s - is certainly possible in the short term.

Inflation Reduction Act (IRA)

If Ozempic or Mounjaro rank among the top 15 Medicare drugs in 2026 and are older than 9 years (Ozempic will just be 9 years old in 2026), they could fall under negotiation in 2027 or 2028. This would force price reductions, potentially to about 40% of current price levels.

Lilly’s Mounjaro was only approved in 2022, so 9 years later is 2031. However, there is a chance tirzepatide might be considered a biologic, which grants 13 years of exclusivity. Tirzepatide is ultimately a peptide, so it might be classified as a small molecule (chemically synthesized) resulting in only 9 years exclusivity. Then Mounjaro would be eligible around 2031.

Specific obesity legislation

If the Treat & Reduce Obesity Act passes (uncertain chance), Medicare would cover obesity medications. Politically, this would only be acceptable with price limits (otherwise budgets would explode). Congress might then require lower prices or direct Most Favored Nation (MFN) pricing. Senator Bernie Sanders explicitly stated in hearings: “if Medicare reimburses, we demand MFN so Americans pay European prices.” This would be a more severe intervention and more than IRA which is negotiated and limited. Whether this is politically feasible remains unknown.

Import Tariffs - Trump scenario

The Trump administration could threaten or impose extra tariffs on imported pharma products under trade law (Section 232) as leverage. Novo’s products are mostly manufactured in Denmark. Trump recently threatened tariffs of 250%. Novo has recently invested in U.S. production capacity, mitigating tariffs largely, so the impact is estimated to be negligible.

How could Novo react?

When it comes to pricing, part of the price reduction will be borne by direct sales instead of sales to middlemen. Sales to patients through middlemen often come at very large discounts. By cutting out the middleman, the companies can sell the medicine cheaper to patients.

In addition, President Trump demands a pricing compared to other countries (mainly specifically targeting on Europe) and does not request a certain fixed price reduction. Therefore, the rest of the world will pay for US price reductions. There are several options for Novo to both live up to the agreement, which is hardly yet 100% contractually enshrined:

• The world outside the US will pay more.,

• Novo will not only move production but perhaps also research to the US if individual countries outside the US do not agree to increased prices.,

• Several products may only be marketed in the US. Or Novo can launch other brand names in low-cost countries. This way, there is no basis for comparison to assess prices.,

• Product modifications can occur, making it more difficult to compare products. The analogy is that a price guarantee only applies to 100% identical products that we know from other places.

We’ve seen above actions play out in reality during Q3 of 2025 when Eli Lilly announced price increases of Mounjaro in the UK in August 2025, from GBP 122 to GBP 330 per month for the highest dose of Mounjaro.

Regarding the import tariffs, Novo seems to be on the safe side as companies who manufacture in the US or are constructing a factory in the US are exempted from these higher tariffs. Novo is building a facility in Clayton, North Carolina and already has an existing plant in Clayton. Nevertheless it is not a guarantee, since these US facilities are mainly focused on filling and finishing and majority of actual GLP-1 production takes place in Kalundborg, Denmark.

Where does Novo focus on to regain market share?

Strategy IO

In addition to focusing on and accelerating R&D/pipeline for next-generation products, Mike Doustdar places great emphasis on growth in emerging markets.

Local production & partnerships

For example, in Africa, there is a collaboration with Aspen Pharmaceuticals to locally formulate insulin. This ensures market presence and goodwill under the “Made in Africa” concept.

Investments in Latin America and Asia

Novo invests in production facilities and supply chain capacity in these regions to quickly meet local demand and reduce dependence on imports (useful against, for example, tariff threats).

Improving accessibility

Novo has offered human insulin at low cost in poorer countries for many years. They might offer GLP-1s in dosed forms (e.g., half-strength semaglutide) at lower prices to maintain market share before generics arrive. This is speculative, but in India, Novo could license local companies or launch its own generic semaglutide once patents expire to keep market share.

Commercial expansion

Doustdar identifies global expansion in Asia and Africa as a strategic pillar. Novo is opening new offices and expanding the sales force in urban centers in countries such as China to ensure that as GLP-1s become more popular, Novo remains top-of-mind for physicians.

Tender strategy

For insulin, Novo already employs a two-track approach: introducing premium products (like the new insulin Icodec) so that older insulins can go generic without losing the entire portfolio. They will continue similar tactics for GLP-1s - for example, when semaglutide becomes generic in China, they plan to have an improved, patent-protected formulation to be preferred in public hospitals.

The emerging market focus described above is also partly risk diversification: less dependence on the US/EU markets. If by 2030 they serve millions of patients in Africa, India, and China (albeit at lower margins), they will have significant volume and relevance. Doustdar emphasized that by 2026 local production could cover 100% of Africa’s insulin demand - a principle they can later apply to GLP-1s.

They plan to compete with Lilly aggressively in the US market - for example, seeking exclusivity in PBM contracts for Ozempic in exchange for higher rebates. This means sacrificing margin but retaining market share. Although this is primarily relevant for the US, similar dynamics occur in the EU where some countries tender for a preferred GLP-1 (e.g., specific hospitals). Novo may have to offer semaglutide at a lower price to avoid being displaced on formularies by Lilly’s tirzepatide.

Novo stated they will sharpen commercial focus by:

• Better segmenting which doctors and patients are not yet on GLP-1s and targeting them to prescribe semaglutide (to increase class share, of which they hold the largest portion).

• Maximizing Wegovy rollout in new markets before Lilly arrives, securing early adopters for Novo and maintaining first-mover advantage.

• Running marketing campaigns to sustain brand preference, since the Ozempic effect as a well-known name is a marketing strength.

• Possibly expanding deals like co-pay assistance programs so patients stay on Novo products.

Maintaining and scaling production capacity remains critically important as well.

Strategy US

D2C

The U.S. market has seen innovative distribution strategies as Novo Nordisk and Lilly compete to get their drugs to patients. Novo Nordisk launched NovoCare Pharmacy in March 2025, a direct-to-patient fulfillment service for Wegovy. Through NovoCare Pharmacy, operated via Humana’s CenterWell Specialty Pharmacy, patients can receive home delivery of Wegovy with convenience services such as refill reminders and support coaches. Novo used this channel to introduce flat-cash pricing in response to affordability issues – offering self-paying patients Wegovy for USD 499 per month. Special short-term promotional pricing as low as USD 199 – USD 299 for the first month was offered in summer 2025 to entice new patients. Novo will bet heavily on this D2C platform for the near future.

CVS deal

To compete on access, Novo Nordisk and Eli Lilly have negotiated with PBMs. In a coup for Novo, CVS Caremark (a top PBM) updated its standard formulary effective July 1, 2025 to prefer Wegovy over Zepbound. This deal means millions of insured patients under CVS-managed plans will find Wegovy as the covered option for obesity therapy, whereas Lilly’s Zepbound might require higher copays or special authorization. CVS’s Prem Shah noted this arrangement will expand Wegovy access at a more affordable price for patients, implying Novo granted CVS significant rebates. Lilly’s CEO downplayed the impact of the CVS move publicly, but such formulary wins can tilt market share.

Express Scripts (Cigna’s PBM) and Optum (UnitedHealth) are also key gatekeepers – as of late 2024, most PBMs cover at least one GLP-1 for obesity, but many use step edits. In diabetes, Ozempic and Mounjaro are generally covered on par with other diabetes drugs, though their high cost means insurers often require patients to step through metformin and other classes first.

What top-line growth can we expect?

Looking at the current stock price and related PE, the market is extremely negative for the coming years. Let’s dive into the potentials and the market size to get some feeling around the revenue growth potential.

Period

The patents for Ozempic – for diabetes – and Wegovy – for obesity – are valid for the key markets until 2031/2032. Therefore, I will limit my analysis to a scenario up to 2030. For companies where patents are such an important part of the business model, everything beyond that period is purely speculative.

Diabetes Market – Past

First, let’s take a quick look back over the past period of the diabetes market and revenue:

Market: 463 million people had diabetes in 2019. This grew to 537 million in 2021 (strong growth of 7.5% per year). The expectation is that by 2030, 643 million people will have diabetes. That represents a growth of 2% per year.

Treated by Novo: Novo provides an annual overview of the number of people they treat. From 32.8 million in 2022 to 43 million in 2024. That is growth of about 7% per year – faster compared to the growth of the total patient population per year. This makes sense; they currently have an estimated 7.5% market share of the total TAM.

Total Global Sales TAM: 5% and 3% growth in 2020 and 2021. Then 25% and 17% growth in 2022 and 2023 due to the use of diabetes medicines for weight reduction. With the introduction of specific weight-loss drugs, this growth rate is not expected to continue in the future (although Ozempic remains an important brand linked to weight loss). Currently 523 billion DKK.

Novo Sales: Novo’s growth in DKK slightly outpaced market growth, although I expect that part of the 10% growth in 2021 already includes weight-loss sales. Sales in other years are roughly in line with the sales volume growth of the market.

Revenue per Patient: If we divide Novo’s revenue by their own reported number of treated patients, we see a limited growth of 5% in 2021 – indicating no visible weight-loss impact yet. After that, the estimated cost per person grows faster at 17%, 11%, and 12% per year – which in my view is driven by the weight-loss impact and therefore unlikely to be sustainable in the long term.

Diabetes Market - Future

Back to the future – what can we extrapolate, and what not? Let’s start with the expectation for the number of people with diabetes:

Novo bases its projections on research showing that 643 million people will have diabetes by 2030, representing a growth rate of 2% per year. I find this a reasonable basis to use.

Then, looking at the number of people treated by Novo: this is an important and reliable ratio to filter out weight loss sales from total sales. There has been about 5-6% growth in treated patients over recent years, with a spike of 11.5% in 2023. Given Novo’s strong track record in the diabetes market and their solid patent protection, I find it plausible to extend this 5% growth rate through 2030. This is higher than the 2% overall market growth, but part of this increase comes from reaching new patients. Currently, they serve an estimated 7.5% of the total TAM, which with 5% annual growth would increase to approximately 9% by 2030. In my opinion, this is quite achievable, leading to an estimated 57.6 million treated patients by Novo in 2030.

Revenue per Patient. This is a self-calculated ratio by dividing Diabetes Sales by the number of treated patients. The rate has increased significantly – which, in my view, is largely attributable to weight loss (since growth in 2021 was only 5% without weight loss). Because Wegovy will to a large extent replace Ozempic, this ratio is expected to decline. I take 2027 as a recalibration point – assuming that in 2025 and 2026 Ozempic volume will still be used for weight loss. I extend the 5% growth rate through to 2027, so my recalibration point is 5% growth from 2021, resulting in 4,384 DKK per person. For 2025 and 2026, I let the cost per person decline linearly to this figure in 2027. For the years after that, I assume only 2% growth due to the patent expiration.

This results in the following overview for Diabetes:

Obesity - Present

Market

According to studies that Novo refers, there are 934 million people worldwide with obesity. This number is expected to grow to 1.245 billion by 2030. That is growth of about 7% per year (!). Of those 934 million, only 2,2% (!) are currently treated with a Branded Anti-Obesity Medication (BAOM). A significant two-stage rocket; on one hand >97% of the market is still untapped, and on the other hand, it is a rapidly growing market. Very difficult to grasp!

Novo’s market share

57% market share in May 2025. However, underneath the surface, the figures are striking: market share declined from 80% in Q4 2024 to 57% in Q2 2025 – a reduction of 23%(!) in just one year!
The market is growing at absurd rates, with year-on-year growth above 100%, so there is still growth possible for Novo in absolute terms. Q4 2024 was the first quarter in which competitors added more revenue year-on-year than Novo.

This is clear at the product level as well. Outside the US, Ozempic was completely overtaken by Mounjaro in Q2 2025, dropping from 53% to 41% market share in just one quarter. In the US itself, from 54% down to 47%.

In the US, we see similar behavior for Zepbound compared to Wegovy; from 41% to 34% market share in just one quarter. Novo still holds 100% market share outside the US.

When both product categories are combined, we see that Lilly has taken over the market leader position in Q2 2025, with Novo at 44% and Lilly at 56%.

Revenue per Patient

Dividing revenue by the number of treated patients yields a Revenue per Patient of approximately DKK 37,000 per year, translated to circa EUR 400 per month.

Obesity - Future

All above results in the following assumptions for the future:

• TAM of people with obesity grows by approximately 7% per year to reach 1.245 billion people, as stated in the research Novo refers to.

• I conservatively increase the number of treated people at a very modest rate of 0.25% per year starting from 2026, eventually reaching close to 2% annual growth and nearly 25 million treated people by 2030.

• I reduce Novo’s market share from 2026 to a flat 30% until 2030. For 2025 I assume a 35% market share, due to >50% market share in H1 2025 and expected <50% market share in H2 2025. This assumption includes rising competition from Lilly in the short term in the USA, new entrants in the medium term, and China dropping out due to patent expiration. This is obviously the largest and most important assumption!

• Revenue per Patient I assume will decline to about 50% of the current cost by 2030. This is due to an increase in competitors and a standard reduction related to patent expiry. 2026 will show a bigger decline as a result of lower prices and an expected reduction in revenue for 2026.

This results in projected revenue of DKK 127.7 billion in 2030.

I expect there is no further upside in pricing, but there is certainly still upside in the number of treated people and market share in 2030. In my opinion, that is where the bull case could be.

Validation of expected Obesity market and market share

In September 2025, an article was published in the prestigious scientific journal Nature, which showed a graphic of the expected obesity market size and the expected market shares of Eli Lilly and Novo Nordisk. They defined the market as the sales of obesity drugs in 7 major markets, i.e. USA, Germany, France, Italy, Spain, UK and Japan and is based on market research from the company Clarivate Disease Landscape & Forecast. Based on this research I double checked my expected market size and volume for Novo.

Nature predicts a USD 43.5 billion or DKK 326 billion total revenue for the selected 7 markets in 2029. During my analysis I expect a total of DKK 406 billion global revenue, which therefore is in line with the article since the global sales of the deep dive will be higher compared to the expected 7 markets total sales.

When zooming into Novo’s expected revenue, Nature predicts a total of USD 20.6 billion or DKK 154 billion vs an expected DKK 122 billion sales for Novo in 2029 as a result of the deep dive. It confirms my conservative approach when it comes to Novo’s market share and as a result, however these Nature prediction is aged and it was predicted before the decline in prices. However, I’m still quite confident with the expected obesity revenue of Novo Nordisk in 2030.

Rare Disease – Short assumption

I have not looked deeper into Rare Disease for now. It has been almost stagnant over the past years, and therefore I have currently factored in 0% growth as a fixed value. It also accounts for only 6% of the revenue.

Overview Revenue – Present & Future

This all results in the following revenue projection per division and total revenue overall:

This all comes down on the following top- and bottom line until 2030

Total revenue in the scenario analysis reflects 310 billion DKK, which is mostly in line with the mid-range of Novo’s management guidance of 7% expected growth (DKK currency) for 2025. Therefore, I used 7% growth as my baseline for 2025.

Due to some more expected reduction of market share and reduced prices for Obesity in 2026, the expected revenue decline for 2026 will be 1.6% in my scenario, which is in line with the expectation of Novo for a low single digit decline. Currently Lilly has a better product and therefore I do expect a growth impact for next year.

Following years will be stable around 30% market share for Obesity – which in my opinion is a modest assumption – and therefore Novo will be able to take advantage of the growing Obesity market, even though prices will drop at the same time. This results in revenue growth between 6% and 10%.

Operating Profit

In the most recent guidance disclosed by Novo on September 11^th 2025, an operating profit growth of 4-10% at CER, or (1)-5% at DKK, is expected for 2025. This lower guidance is a result of the personnel lay-off. Therefore, I took a 3% operating profit increase for 2025.

Tax

I expect tax rate will increase over time from 22% till 23.25% in 2030.

Net Profit & EPS

Net Profit will also decline from 33% in 2025 towards 31% in 2030, due to;

• Tougher market circumstances in the US,

• Lower Obesity pricing due to competition,

• Additional depreciation due to increased capex spend.

EPS will increase faster compared to net profit due to continuation of share buyback program as of 2026.

Valuation feels very cheap - but is it true?

I think valuing a pharma company like Novo Nordisk is particularly challenging because I have to acknowledge how little I truly know and how unreliable my growth forecasts may turn out to be. Hence, I demand an extra-large margin of safety.

FiscalAi projects a Forward PE of 12.5 - while my own projection expects a Forward PE of 14.4 based on an expected 102.5 million DKK net profit in 2025 and a current stock price around 331 DKK. This feels like a bargain, but we will have to look at the Reverse DCF and DCF as the capital expenditures for Novo impacts the free cashflow significantly and have been increasing recently.

Valuation gap between Novo and Lilly

The valuation gap between Eli Lilly and Novo Nordisk is hard to ignore. Lilly is trading at 30 times next year earnings, while Novo sits around 14 times. Let’s put this another way - despite having very similar unit economics, if you were buying these companies outright, you could have two Novo Nordisk’s for the price of one Eli Lilly! However, Eli Lilly is increasing market share and Novo Nordisk is losing market share. I won’t be valuing Eli Lilly in this company, but the difference in P/E is remarkable.

Reverse DCF

For the Reverse DCF I have taken my growth assumptions I have explained earlier and have calculated the unlevered free cash flow by adding / deducting non cash items like depreciation and amortization and the cash outflows for capital expenditures and a change in Net Working Capital. I end up at DKK 48.3B for 2025 and DKK 53.1B for 2026. Last year this Unlevered Free Cash Flow hit DKK 60.2B. The huge decline towards 2025 is a result of an increase in capital expenditures by ~DKK 12.8B and the increase in operational expenses as a result of restructuring costs resulting in a lower EBIT margin. This is a one-time expense, however next year this upside is offset by lower pricing. Hence, it explains why the stock price decreased significantly.

This means as of 2025 the Free Cash Flow has to grow by 14.7% per year to get a 10% return. Everything depends a lot on how much capital expenditures Novo Nordisk needs in the future to grow their business. For 2026 I expect this will be reduced to DKK 51.7B, but obviously these numbers have high impact on the total valuation. So after all, the company doesn’t seem to be that cheap at all. If I take 2026 as year 1, with 53.1B as expected free cash flow, then it still needs a 13.25% annual growth to get a 10% return per year.

Discounted Cash Flow

For the Discounted Cash Flow I have entered my, what I think, conservative assumptions, which I have discussed earlier in the future sections of e.g. Diabetes and Obesity and which are for Obesity:

• Market share of 30% as per 2026 and flat until 2030

• People treated globally increasing with 72M per year

• Percentage of patients treated globally growing by 0.25% per year as of 2026

• Revenue per patient at 28.000 DKK for 2026 and 2027 and declining towards 18.000 DKK for 2030.

I have predicted the first five years till 2030 and then assumed an increase of 7.5% for the last 5 years.

The result shows an intrinsic value of 228.0 DKK which is 26% below the current stock price. As I think my assumptions are conservative this would be my conservative case but with all the unknowns around pricing, competitive pressure, patents expiring, high capital expenditures I think it’s fair to have a margin of safety.

If I take a more positive view on the Obesity market, and use the following assumptions:

• Year 1 is 2026 instead of 2025 (as we are close to the end of the year)

• Market share gradually decline to 30% in 2030 (instead of a direct decline towards 30%)

• People treated globally increasing with 75M per year (instead of 72M)

• Percentage of patients treated globally growing by 0.3% per year as of 2026 (instead of 0.25%)

• Revenue per patient at 28.000 DKK for 2026 and 2027 and declining towards 18.000 DKK for 2030 (no change)

• Capital expenditures declining from currently 19.2% of revenue for 2025 and dropping towards 17% of revenue in 2027, 14% of revenue in 2027 and then stable at 11% of revenue in 2028 - 2030

• Growth rate after 2030 of 10%.

Then the intrinsic value is above todays stock market price. It’s important to realize that the impact of the capital expenditures is huge. If I wouldn’t have lowered the capital expenditures forecast, the intrinsic value still would have been lower versus current stock price. Hence, most important for investors to watch is the capital expenditures. How much does management need to grow the business in the future? It’s very difficult to predict this, but to compare with Eli Lilly they spend 11.2% of their revenue on capex in 2024 and are expected to spend ~12.6% on capex in 2025. So I feel more comfortable with the conservative approach and hence my buy below price is 228 DKK.

Investor Takeaway

Core Strength

One of the more unusual features of Novo’s structure is its ownership: the Novo Nordisk Foundation owns just 28.1% of the shares, but controls 77.3% of the votes through a dual-share structure. It allows management to focus on long-term innovation and sustainable growth instead of chasing quarterly earnings targets.

Novo Nordisk’s management has substantial insider ownership. Novo mandates that the CEO hold at least 3× their annual base salary in Novo Nordisk shares, and EVPs hold at least 1.5× their salary in shares. All executives meet or exceed these ownership guidelines.

Novo Nordisk distinguishes itself operationally through its fully integrated supply chain, allowing it to oversee all stages of production - from sourcing raw materials to delivering finished products. This end-to-end integration minimizes reliance on external suppliers and has been developed over years of organic growth, supported by complex and often costly acquisitions. Such vertical integration is a significant competitive strength, as manufacturing advanced biologics like semaglutide at scale demands unique expertise and capabilities that few competitors can match.

Although Eli Lilly currently has the better Obesity product on the market until mid-2026, Novo has been able to develop a competitor. CagriSema must compete with Tirzepatide (the already marketed Zepbound). CagriSema 2.4 mg has comparable (even slightly better) weight reduction compared to Tirzepatide, at 22.7% and 21.1% respectively.

But more importantly, Novo currently took the lead when it comes to oral obesity medications. Oral obesity medications are under investigation at both companies. Novo already has an advantage with Rybelsus, but it shows limited weight reductions of approximately 4–5 kg. Therefore, Novo has developed a Semaglutide 50 mg pill that achieves 17.4% weight reduction. Eli Lilly has developed an Orforglipron 36 mg pill, which in August 2025 showed a result of 12.4% weight reduction. Novo’s Semaglutide 25 mg has a weight reduction of 16.6%, has already been filed with the FDA, and results are expected in Q4 2025. Semaglutide 50 mg is nearly Phase 3 completed. Lilly expects to file with the FDA in Q4 2025.

Profitability? Still high with the first 9 months at 81.0%, however declining versus 84.6% for last year. Also operating margins are declining, at 41.7% for the first 9 months versus 44.7% last year.

Key Dependency

Production capacity. To meet increasing demand, ensure a stable supply and therefore avoid (legal) compounding situations, Novo Nordisk has continued to invest heavily in scaling up manufacturing capabilities. The acquisition of three fill-finish sites formerly run by contract and development manufacturer Catalent Inc., expands its production capacity in the United States, Belgium and Italy. It has also expanded existing production facilities in Denmark, France, Brazil and China and will significantly improve supply stability and increase output.

The ‘Big Three’ pharmaceutical wholesalers McKesson, AmerisourceBergen, and Cardinal Health are critical stakeholders of Novo Nordisk (and Eli Lilly). They purchase all medication for the US market and distribute them to retail pharmacies like CVS, Walgreens, Walmart, etc., mail-order pharmacies, and hospital pharmacies. Pricing is mainly determined by these parties. They basicly control the entire distribution chain of Novo’s medication in the US. It is of utmost importance of Novo to maintain perfect relations with them and improve their sales channel, especially post-compounding and because of the changing regulation environment in the US.

Top Growth Driver

There is only one answer to this; 934 million people worldwide have obesity. This number is expected to grow to 1.245 billion by 2030. That is a growth of about 7% per year. Of those 934 million, only 2,2% (!) are currently treated with a Branded Anti-Obesity Medication (BAOM). A significant two-stage rocket; on one hand >97% of the market is still untapped, and on the other hand, it is a rapidly growing market. Very difficult to grasp!

Main Risk

In all obesity segments, Novo was the market leader, but in recent quarters it has lost significant market share. Particularly notable is GLP-1 – with a drop from 56.1% to 51.9% in just one year – and Obesity – with a drop from 80% to 57%, also in just one year!
When we add together the revenues of Ozempic, Mounjaro, Wegovy, and Zepbound, Lilly took over the market leader position since Q2 2025 with a 56% market share – despite the fact that Zepbound is still hardly available outside the US and has negligible revenue in those regions.
At the same time, the market is growing with such high numbers, that even a drop in market share still results in revenue growth.

Novo has been hit hard by compounding – harder compared to Lilly. Novo has opened a true legal campaign. They started suing some compounders in 2023 and intensified this in 2024 and 2025. By August 2025 Novo had filed 132 lawsuits in 40 states. On August 5, they announced 14 new lawsuits against organizations illegally offering semaglutide compounds. Compounding is expected to wane in the second half of 2025 but not disappear completely - and its impact may still continue in 2026, although smaller.

The Trump administration could threaten or impose extra tariffs on imported pharma products under trade law (Section 232) as leverage. Novo’s products are mostly manufactured in Denmark. Trump recently threatened tariffs of 250%, but these were retoric as there is no pharma specific implementation so far. Novo has recently invested in U.S. production capacity, mitigating tariffs largely, so the impact is estimated to be negligible.

If the Treat & Reduce Obesity Act passes, Medicare would cover obesity medications. Politically, this would only be acceptable with price limits (otherwise budgets would explode). Congress might then require lower prices or direct Most Favored Nation (MFN) pricing. MFN pricing could reduce Wegovy’s price to around USD 200 – USD 300. Whether this is politically feasible remains unknown.

Biggest Unknown

I’ve stopped obsessing over whether Novo’s drugs deliver 23% weight loss or 25%. Novo is behind in product efficiency when it comes to marketed products, but both Novo and Lilly do have perfect products in final phases of research or submission to the FDA. The real value lies in how much of the significant (potential) obesity market it can capture - and that comes down to the scale, efficiency, strong management, and vertical integration of its operations. That’s why Novo has been pouring a lot of money into capital expenditures and expanding its manufacturing footprint and appointed Doustdar as new CEO due to his clear vision and track record of driving growth through strong execution and team building.

Biggest unknown is whether Doustdar (and his management team) will be able to turn the ship, since I expect that their results (whether positive or negative) will have a major impact. Another big question mark is how soon Novo can launch new patents on dual and triple agonist to be able to protect the obesity products well after 2032.

Final Conclusion

Novo Nordisk is, without question, a very high-quality business:

• A 100-year-old foundation-owned structure that effectively removes short-term pressure.

• Management with decades of tenure, personal ownership, and a proven capital allocation track record.

• Vertical integration that is very difficult to replicate at scale.

• A dominant position in diabetes (still growing) and the current #1 or #2 spot in the fastest-growing drug class in history (GLP-1).

Add the fact that >97 % of the global obesity population remains untreated, and you are looking at a legitimate multi-decade growth runway that very few companies ever get.

Yet, after a lot of work of Steven in putting this together, my personal conclusion is simple: I will not own the stock at current levels, and probably not at any realistic level in the coming years.

Why?Because pharma at this stage of the cycle is simply too binary and too dependent on variables I cannot forecast with any acceptable margin of safety:

• Will Novo regain share with CagriSema, amycretin, or the oral 50 mg pill? Possibly, maybe even probably, but Lilly is not standing still either.

• How fast will U.S. net prices collapse once Medicare potentially negotiates or the Treat & Reduce Obesity Act forces most favored nation pricing?

• When exactly will CapEx peak and start declining as a percentage of sales? The difference between 19 % forever and dropping to Lilly-like 11–12 % is literally hundreds of kroner per share in intrinsic value.

• Patent cliffs in China (2026) and eventually the rest of the world (2031–2032) are coming, no matter what.

Even in my bull case (30–35 % obesity market share held longer, faster CapEx normalisation, successful oral pill leadership), the stock is only fairly valued to slightly cheap today. In the conservative base case it is still meaningfully overvalued.

Quality investing is not about buying every great company — it is about buying great companies only when the price embeds a sufficient margin of safety against permanent capital loss. It’s one of the most important lessons for me this year.

At today’s ~14× forward earnings (and a reverse DCF that still requires 13–15 % perpetual FCF growth for a 10 % return), Novo Nordisk offers almost no forgiveness for the many things that can still go wrong.

The oral obesity pill could indeed be the catalyst that puts Novo back in the lead. New dual/triple agonists could extend the runway well beyond 2032. Mike Doustdar and the new team might execute flawlessly in international markets and turn the ship faster than anyone expects.

All of that is possible. But none of it is probable enough, in my view, to justify the risk/reward at current or foreseeable prices.

So yes, Novo Nordisk has been a textbook quality compounder the last years and Denmark’s best business ever, but it is just not an investment for me. Not yet, and maybe not ever.

If you have the risk tolerance for pharma mega-cycles and believe the obesity total adressable market will overwhelm all the risks above, Novo can still be a wonderful long-term holding.

That’s it…

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The information in this article is provided for informational and educational purposes only.

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Introduction

This is the first article from the new Collective Fire Framework initiave. Member TuDi main contributor to this article, but it has been reviewed by other members including myself. TuDi is the creator of the F.L.O.W method of stock investing - using the power of awareness, patience and disciplined movement, just like in martial arts, in order to strike at high-conviction momentum plays and flow like fast rising water into long-term compounding businesses and ETFs. You can follow TuDi here.

Quick Scan

Last week I shared the Quick Scan of Veeva. It shows an Investment Readiness Score of 81.3, which makes it ready for a deep dive.

History of the Business

Veeva Systems Inc. is one of the most significant software success stories of the past two decades, a company that has managed to carve out a specialized yet enormous market in cloud-based software for life sciences. The firm was incorporated in 2007 under the name Verticals onDemand, Inc., later adopting the Veeva Systems name in April 2009 as its ambitions broadened.

From its earliest days, the company was positioned to exploit a gap in the market: while Salesforce and other horizontal SaaS providers offered platforms applicable to many industries, life sciences had unique compliance, regulatory, and workflow needs that were poorly served by generalist solutions. Veeva’s founders, led by current CEO Peter Gassner, a veteran of both Salesforce and PeopleSoft, saw the opportunity to build purpose-built cloud applications for pharmaceutical and biotech customers.

Gassner’s experience at Salesforce was pivotal. He had been one of the architects of the Salesforce platform, and he recognized both the power of multi-tenant cloud infrastructure and the limitations of a one-size-fits-all product. Life sciences stood out as a vertical requiring strict regulatory compliance, audit trails, and a heavy dose of content management in addition to customer relationship management.

By tailoring Salesforce’s technology to these requirements, Veeva quickly established itself as the go-to solution for pharma salesforces who needed to manage physician interactions within the tight confines of healthcare compliance.

The company’s first product, Veeva CRM, launched in 2007, was essentially a life sciences–specific CRM built on Salesforce’s Force.com platform. It immediately gained traction among pharmaceutical firms that were under increasing scrutiny to document interactions with healthcare providers. Within a few years, Veeva was serving several of the largest global pharma companies, a base that provided both credibility and recurring revenue stability.

Historical Evolution

Veeva Systems’ trajectory since its founding in 2007 offers a rare example of a vertical SaaS business that has scaled globally while retaining focus and discipline. The company was born during a period when cloud computing was still in its early adoption phase, especially in regulated industries like life sciences.

From the beginning, founder Peter Gassner positioned Veeva not as a broad-based enterprise software vendor, but as a specialist: the company would build mission-critical applications for pharmaceutical and biotech companies, tightly integrated with industry workflows, and delivered entirely via the cloud. This focus distinguished Veeva from generic CRM platforms and gave it an immediate identity in a crowded market.

Expansion into Content Management

Recognizing the limits of building on another company’s platform, Veeva soon began developing its own. In 2011, it launched Veeva Vault, a cloud-based enterprise content management platform designed specifically for regulated industries. Vault provided life sciences companies with tools to manage documents, workflows, clinical trial data, regulatory submissions, and quality processes.

This move proved transformative. Vault diversified Veeva away from reliance on Salesforce infrastructure and positioned the company as not just an application provider, but as the owner of a proprietary, extensible platform. Over the years, Vault became the anchor of Veeva’s business model and remains its most important growth engine today.

The life sciences industry encompasses pharmaceuticals, biotech, medical devices, diagnostics, and related fields where the stakes are especially high: long development cycles, rigorous regulatory oversight, and complex multi-stakeholder engagement (doctors, hospitals, payers, regulators, patients). In this context, a CRM specialized for life sciences becomes critical: unlike generic CRMs, it embeds features for regulatory compliance (e.g., tracking consent, audit trails, adverse event reporting), multichannel and omnichannel interactions with healthcare professionals (HCPs), and integration with scientific/clinical data systems.

Veeva is a leading example of such specialization: its Veeva CRM / Vault CRM is built specifically for life sciences, offering capabilities like approved email (to stay compliant), integrated field team management, consent management, and purpose-built engagement tools for medical science liaisons and commercial reps.
Because the life sciences domain requires both deep domain knowledge and strict compliance, CRM specialization matters. It enables firms to manage relationships and data without risking regulatory violations, while supporting high-value interactions across the scientific and commercial lifecycle.

IPO and Public Market Entry

By 2013, Veeva’s revenue was approaching $130 million, and the business was growing at more than 50% annually. In October of that year, the company went public on the New York Stock Exchange under the ticker VEEV. The IPO was a resounding success, raising $261 million at a valuation above $4 billion. An extraordinary multiple that reflected both Veeva’s growth and its unusually high margins for an enterprise software company. Investors were drawn to the combination of sticky, regulated-industry customers and the recurring revenue model of SaaS.

The IPO also marked the beginning of a new era of financial transparency, giving outsiders a clearer look into Veeva’s economics: gross margins in the 70% range, operating margins north of 20%, and free cash flow margins that would only expand over time. From its first years as a public company, Veeva set itself apart as both a growth stock and a highly profitable enterprise.

Broadening the Portfolio

Following the IPO, Veeva embarked on a decade-long expansion of its offerings. It built out the Veeva Commercial Cloud suite, which extended CRM into medical affairs, content management, and multichannel marketing. Products like Veeva CLM (closed-loop marketing), Veeva Align (territory alignment), and Veeva Network (customer master data) deepened its entrenchment within customer workflows.

Simultaneously, Vault expanded into multiple domains: Vault Clinical, Vault Quality, Vault Regulatory, and Vault Safety each targeted specific pain points in the drug development and commercialization process. By 2020, Veeva was serving not only commercial sales teams but also R&D organizations, regulatory departments, and quality assurance groups across the life sciences industry. This diversification insulated the company from cyclicality in any one part of the pharma value chain and broadened its total addressable market (TAM) into the tens of billions.

Financial Growth and Global Reach

From fiscal 2014 through fiscal 2025, Veeva’s revenues grew from roughly $130 million to nearly $3 billion, a compound annual growth rate exceeding 20% over more than a decade. Profitability kept pace: net margins are consistently above 25%, and free cash flow margins hover around 40–45%, metrics that place Veeva among the most efficient software businesses globally. The company now employs more than 7,000 people worldwide and serves customers in North America, Europe, Asia-Pacific, and Latin America, with more than 1,000 life sciences clients including 19 of the top 20 global pharmaceutical firms.

Early Growth and Salesforce Partnership

In its first decade, Veeva leveraged Salesforce’s Force.com platform to build Veeva CRM. This allowed the company to reach the market faster, reduce upfront infrastructure needs, and piggyback on Salesforce’s reliability. The partnership was both a blessing and a constraint: it accelerated adoption but created customer perception that Veeva was a “layer” rather than a platform in its own right. Nonetheless, Veeva quickly became the de facto standard CRM for pharmaceutical field sales representatives, gaining more than half of the market share among large pharma within five years of launch.

By 2013, when Veeva went public, revenue had reached $213 million, growing at over 60% annually. The IPO highlighted Veeva’s unusual profitability for a SaaS company, operating margins were above 20% even at that stage. Investors rewarded this combination of growth and profitability with one of the most successful SaaS debuts of that era.

Vault and Diversification

The next major evolution came with Veeva Vault, launched in 2011. Vault was a bold step: a fully independent cloud content management platform designed specifically for regulated documents and workflows. Unlike CRM, which had competitors, Vault addressed white space. The need for managing clinical trial data, regulatory submissions, and quality documentation in a compliant, secure, and auditable way. Over time, Vault became the growth engine of the company, expanding into dozens of modules across clinical, regulatory, quality, safety, and commercial domains.

This transition marked Veeva’s shift from being seen as “Salesforce for pharma” to an independent software platform with its own technical foundation. It also enabled expansion beyond commercial functions into research and development, a much larger addressable market.

The story of Veeva’s evolution is one of deliberate focus, disciplined execution, and widening competitive advantage. From a single CRM application built on someone else’s platform, it has grown into a diversified, independent ecosystem for regulated industries. Each stage of this evolution, from IPO, Vault expansion, diversification to Salesforce independence, reinforced its reputation as one of the most durable and predictable business models in enterprise software.

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Management

Founding Leadership

Veeva Systems has been led since its founding by Peter P. Gassner, who remains both CEO and Chairman of the Board. Gassner’s longevity in the role is unusual for a modern software company; many firms see turnover at the top once they reach scale, but his continued presence reflects the founder-driven culture at Veeva. Gassner brings deep credibility, having previously served as SVP of Technology at Salesforce, where he was responsible for the Force.com platform, and earlier as Chief Architect of PeopleSoft. His combination of technical expertise and vision for vertical SaaS has anchored Veeva since 2007.

Alongside Gassner, co-founder Matt Wallach played a crucial role in the company’s early commercialization. Wallach served as President until his retirement from day-to-day duties, though he remains on the Board of Directors. This continuity ensures that the company retains the founding DNA even as it professionalizes its operations for long-term scale.

Executive Team Today

As of 2025, Veeva’s management team reflects a balance of long-tenured insiders and newer additions brought in to strengthen finance and operations. The key executives include:

Peter Gassner (CEO & Chairman): Founder, architect of the strategic roadmap, and holder of over 15 million shares (~9% of outstanding), giving him significant skin in the game.

Brian Van Wagener (CFO): Appointed in 2024 after the departure of longtime CFO Brent Bowman. Van Wagener joined as EVP of Finance in mid-2024, quickly elevated to CFO in September. His compensation reflects both base salary and substantial equity incentives with multi-year vesting, designed to ensure stability in the finance function.

Thomas D. Schwenger (President & Chief Customer Officer): Oversees field operations, customer success, and services. Schwenger plays a central role in ensuring the “land and expand” strategy succeeds across Veeva’s global client base.

E. Nitsa Zuppas (President & Chief of Staff): A cultural leader within the company, responsible for branding, people, and operational alignment across business units.

Josh Faddis (General Counsel): Senior Vice President and Corporate Secretary, bringing governance discipline to a company serving heavily regulated industries.

This team collectively combines industry-specific expertise, technical depth, and operational execution, though Gassner remains the indispensable leader.

Board of Directors

The board includes experienced industry veterans and investors. Gordon Ritter of Emergence Capital, one of the earliest venture investors in SaaS, has long been a key director. Independent directors such as Mary Lynne Hedley and Priscilla Hung add domain knowledge in biotech and enterprise software, respectively. Overall, the board balances founder influence with independent oversight, though Gassner’s dual role as CEO and Chairman consolidates power in management.

Executive Compensation

Veeva’s executive compensation philosophy diverges from the cash-heavy approaches common in Silicon Valley. According to the 2025 proxy (DEF 14A), all executive officers receive the same base salary—$450,000 in fiscal 2025, moving to $475,000 in 2026. Notably, there are no cash bonuses or short-term incentive plans. Instead, compensation is equity-driven, with two main vehicles:

1. Annual RSU “Stock Bonus”: Designed to provide near-term equity vesting aligned with base salary multiples (125%–375%). These vest quarterly over one year.

2. Annual Stock Options: Multiples of the RSU grants (3x–4x), vesting over four years. Options inherently tie compensation to long-term shareholder value.

For example, CFO Van Wagener received ~$3.9 million in combined RSUs and options in 2025. General Counsel Faddis received ~$3.2 million. The largest award went to Gassner, with a five-year stock option program approved in 2024 covering 2.65 million shares, vesting through 2030. Its grant-date fair value was ~$172 million, though the board noted the cost should be considered across five years, not one.

This structure strongly emphasizes long-term alignment and discourages short-term risk-taking. The lack of cash bonuses is unusual but reinforces Veeva’s disciplined culture.

SBC as % of Revenue

• Last 5-year average: ~15.5% of revenue

• Trend: Stable to slightly down versus the last years. SBC has not ballooned with scale, but remains high in absolute terms (~$450–470M/year).

Why It Matters

• SBC dilutes intrinsic returns: while GAAP treats it as a non-cash expense, it represents future share dilution that reduces per-share FCF growth.

• Adjusted FCF margins (excluding SBC) look ~45%, but owner’s earnings after SBC are closer to 30–32%.

• This difference is key when modeling DCF or calculating a “true” FCF yield.

Insider Ownership

Founder ownership remains significant. Gassner controls ~9.1% of common stock, giving him influence over both governance and strategic direction. Directors and executives as a group own ~10.3%. Outside institutions such as Vanguard (8.1%) and BlackRock (5.7%) provide further oversight, though the founder’s stake ensures his interests are tightly linked to shareholders.

Credibility and Track Record

The management team has generally delivered on its commitments. Historical revenue and EPS guidance have been conservative and consistently exceeded.

Execution on Vault and expansion into new segments has validated the long-term strategy. The key open question remains the CRM migration off Salesforce, which will test both operational credibility and customer trust. Still, investor confidence is supported by the alignment of equity-heavy compensation, insider ownership, and a demonstrated ability to grow revenue >20% CAGR while maintaining >25% net margins.

Culture

Values and Philosophy

Veeva Systems has cultivated a culture that diverges from many Silicon Valley peers. While most high-growth software companies emphasize aggressive growth targets and cash-based incentives, Veeva’s leadership has consistently promoted a long-term, team-first philosophy. Founder and CEO Peter Gassner has been explicit in interviews and annual reports: the company is designed to be “built to last” rather than optimized for short-term performance. This vision has manifested in how the company treats employees, manages incentives, and positions itself within the broader community of stakeholders.

The executive compensation structure reflects these values. As outlined in the 2025 proxy statement, executives receive identical base salaries and are not eligible for cash bonuses. Compensation is largely equity-based, vesting over multiple years, reinforcing a patient, ownership-oriented mindset. This design cascades down into the culture at large: employees are encouraged to think like owners, not short-term contractors chasing quarterly metrics.

Employee Experience

Glassdoor and Indeed reviews consistently highlight high job satisfaction, with employees citing strong leadership, a clear mission, and meaningful work as top reasons for staying. As of 2025, Veeva maintains a rating above 4.0/5.0 on major employment platforms. Reviewers frequently point to the balance between performance expectations and work-life flexibility. Unlike some software companies that glorify burnout, Veeva emphasizes sustainable output and longevity.

Retention rates are strong: voluntary attrition is lower than industry averages in enterprise SaaS. Employees often cite the ability to work on critical systems in life sciences, such as clinical trial management and regulatory filing platforms, as a motivator, since their work contributes to bringing new medicines to market. This sense of purpose bolsters morale and aids recruitment.

Diversity and Inclusion

Veeva has made progress in diversity, equity, and inclusion (DEI), though like many technology firms, it still faces challenges. The company reports gender diversity figures in its workforce and leadership, with women comprising over 30% of employees and growing representation at senior levels. Initiatives aimed at building inclusive hiring pipelines, particularly for technical roles, are underway. Compared with peers, Veeva’s DEI efforts are notable for their integration into core business rather than being treated as peripheral HR projects. For instance, its Vault Quality and Regulatory products require close collaboration with global clients, naturally exposing teams to diverse perspectives.

Training and Development

Employee development is another pillar of culture. Veeva invests in training programs designed to help employees understand both technology and the life sciences domain. This dual expertise is essential, as the company’s products intersect deeply with scientific, regulatory, and commercial processes. Professional growth is not limited to technical skills; Veeva emphasizes leadership training, often promoting from within for senior roles. This has created continuity and stability in the workforce.

1. Cross-Domain Training Is Uncommon

   Most SaaS companies train employees primarily in technical or product knowledge. Veeva, however, deliberately cross-trains staff in both software and life sciences ensuring engineers, product managers, and customer success teams understand FDA compliance, GxP validation, and clinical trial workflows.

   This is unusual because:

   1. Most competitors (e.g., Salesforce Health Cloud, Oracle Health) rely on domain specialists at the client to bridge that knowledge gap.

   2. Veeva embeds this dual expertise internally, which enhances credibility with regulated customers and speeds implementation cycles.

2. Internal Promotion and Long Tenure

   Veeva’s emphasis on leadership development and internal promotion has yielded one of the lowest voluntary turnover rates in the SaaS industry (~10–12% vs. sector median ~15–18%).
   Many of its senior executives, including key figures in Vault, Commercial Cloud, and Regulatory, have risen internally over a decade.
   This continuity supports Veeva’s “customer partnership” model: clients work with the same trusted individuals for years, creating institutional memory and long-term loyalty.

3. Strategic Advantage: “Embedded Domain Knowledge”

   This training culture translates directly into product quality and customer stickiness. When product managers and engineers understand the compliance constraints of pharma and biotech, they design features proactively for regulatory needs, reducing rework and improving speed to market.

In short, Veeva’s talent model itself is a moat: it’s expensive and time-consuming for competitors to replicate because it requires deep domain immersion, not just software know-how.

Peer Comparison

Alignment with Long-Term Thinking

One of Veeva’s most unique cultural commitments is its Public Benefit Corporation (PBC) status, adopted in 2021. As a PBC, Veeva is legally obligated to balance shareholder interests with those of employees, customers, and society. This choice, rare among public companies, codifies the cultural philosophy that the company’s purpose extends beyond maximizing quarterly earnings. It aligns with decisions such as resisting cash bonuses for executives and focusing on sustainable business practices. For employees, this reinforces the perception that they are working for a mission-driven company rather than a purely profit-maximizing entity.

A natural question is: what happens after the founder leadership? Veeva’s Board explicitly retains responsibility for CEO succession planning and monitors succession readiness for key roles. The recent 2024 performance option grant for Gassner vests over five years, contingent on his continued role as CEO through 2030, signaling long-term commitment to stability and alignment. Maintaining the cultural ethos post-founder is an underappreciated but critical execution risk.

Industry Comparisons

Relative to peers like Salesforce, Workday, or ServiceNow, Veeva’s culture appears more deliberately restrained and mission-centric. The absence of lavish perks or short-term incentives is unusual, but it fits the company’s strategy of serving heavily regulated, risk-averse clients. Employees are drawn to the stability and seriousness of purpose, rather than the hype-driven cycles that characterize much of Silicon Valley. This has created an identity distinct from general enterprise SaaS firms.

Risks in Cultural Evolution

That said, maintaining culture at scale is a challenge. With over 7,000 employees across multiple continents, local variations inevitably emerge. Growth beyond life sciences into adjacent industries may strain the cultural fabric, as teams accustomed to one domain are asked to adapt to new contexts. Moreover, reliance on equity-based compensation requires stock performance to remain strong; prolonged stagnation in share price could weaken morale if employees perceive their equity awards as less valuable.

Summary of Culture

Overall, Veeva’s culture can be described as long-term, ownership-driven, and purpose-led. The company avoids short-term gimmicks in favor of equity alignment, emphasizes employee well-being and mission orientation, and has codified its stakeholder commitments through PBC status. For investors, this culture reduces the risk of reckless decision-making but raises the question of whether slower, more deliberate growth might occasionally cause the company to miss near-term opportunities. Still, the cultural model has been a major contributor to the company’s remarkable financial consistency and employee loyalty.

Business model

Overview

Veeva Systems is a vertical SaaS company focused on cloud-based solutions for the life sciences industry. Unlike horizontal software firms that attempt to serve a wide range of industries with generic products, Veeva specializes in a single, highly regulated vertical where compliance, data integrity, and specialized workflows matter as much as functionality. This strategic choice underpins the stickiness of Veeva’s offerings, which are deeply embedded in critical processes like clinical trials, regulatory filings, and customer engagement.

At its core, Veeva’s business model is built on three pillars:

• Subscription-based revenue (~80–85% of total), providing recurring and highly predictable cash flows.

• Professional services (~15–20%), primarily implementation and training, designed not as profit centers but as enablers of product adoption.

• Expansion across the pharma value chain, moving from sales and marketing (Commercial Cloud) into R&D, regulatory, and quality (Vault), and more recently into data analytics (Link and Data Cloud).

• Gross margins in the mid-70s, operating margins near 30%, and free cash flow margins above 40% highlight the efficiency of this model. Unlike many SaaS peers, Veeva combines high growth with unusually high profitability.

• Over 80–85% of revenue comes from multi-year contracts for software modules within Veeva Commercial Cloud and Veeva Vault. These contracts are sticky, mission-critical, and typically expand as customers roll out additional modules or increase usage.

• The result is net revenue retention consistently above 120%, which means Veeva grows even before adding new customers.

Commercial Cloud

Veeva’s first business line, Commercial Cloud, remains foundational. It includes:

• Veeva CRM: the flagship product, built initially on Salesforce, tailored to track pharma salesforce interactions with healthcare providers. It enforces compliance in physician outreach, samples distribution, and communications.

• Veeva Medical CRM (Customer Relationship Management) and Veeva CLM (Closed Loop Marketing): tools for digital content delivery to physicians, particularly important as pharma interactions moved from in-person to digital channels post-COVID.

• Veeva CRM Engage and Approved Email: virtual engagement modules, now indispensable in hybrid salesforce models.

• Veeva Align and Events Management: territory alignment and meeting management solutions that integrate directly into CRM.

• Veeva Nitro: a commercial data warehouse that integrates with CRM workflows.

Commercial Cloud has historically accounted for ~40% of revenue, though this share is gradually declining as Vault expands. Growth here is slower (mid-single digits), reflecting the maturity of CRM. However, switching costs remain formidable: once a global pharma’s 50,000+ field reps are on Veeva CRM, moving off would disrupt regulatory compliance.

Vault

The Vault platform is the crown jewel. It has become Veeva’s growth engine, expanding far beyond content management into dozens of specialized applications. Vault now contributes more than half of total revenue and is expected to dominate growth over the next decade. Key modules include:

• Vault Clinical: manages trial master files, study start-up, and site document exchange. Clinical operations are highly regulated; Vault ensures compliant record-keeping and faster trial execution.

• Vault Regulatory: supports regulatory submission workflows and electronic common technical documents (eCTDs) for global drug approvals.

• Vault Quality: quality management systems (QMS) for manufacturing and laboratory processes, ensuring compliance with FDA and EMA standards.

• Vault Safety: pharmacovigilance, tracking adverse events post-launch to comply with safety reporting requirements.

  

Vault is mission-critical. Once trial data, regulatory filings, and quality systems are embedded, customers cannot realistically switch providers without risking compliance failures and delays in product approvals. This gives Vault extraordinary stickiness and pricing power. Growth here is in the mid-teens to 20% range, and the TAM remains massive.

Data Cloud and Link

In recent years, Veeva has moved into data and analytics.

• Veeva Data Cloud: a patient and physician longitudinal data platform, competing with IQVIA’s massive datasets. While still in early stages, this could become a multi-billion-dollar line if it captures share.

• Veeva Link: maps scientific and medical expert networks, enabling pharma to identify key opinion leaders for clinical trials and product launches.

These products extend Veeva’s reach from workflows into insight generation, potentially raising average contract value (ACV) per client. Adoption is still ramping, but customer logos like Gilead suggest traction.

Professional Services

Professional services account for ~15% of revenue, with gross margins closer to breakeven. These services, implementation, data migration, and training, are designed to accelerate product adoption, not to generate profits. By keeping services pricing reasonable, Veeva lowers barriers for customers to deploy new modules. Importantly, services revenue is a leading indicator of subscription growth.

Case Study: Atlantic Research Group (ARG)

ARG, a contract research organization (CRO), adopted Veeva eTMF and Veeva CTMS to streamline its clinical operations.

• Before adoption, ARG faced fragmented trial documentation, delays in trial master file workflows, and inefficient site communications across multiple global sites.

• With Veeva’s modules, ARG reduced administrative friction, improved document version control, and condensed trial timelines.

• This case demonstrates how Veeva’s software becomes operational leverage for CROs, not just pharma sponsors. It also shows expansion potential: using clinical modules is often the first step for newer customers, which can later lead to adoption of regulatory or quality modules (i.e. land & expand).

Takeaway: Modular deployment in clinical workflows can act as an entry wedge; once workflows are validated, Veeva can upsell downstream modules.

Case Study: Bayer AG — Omnichannel Marketing & Data Platform

• Bayer leveraged Veeva Crossix & Veeva CRM to connect HCP + patient and digital-field workflows across channels.

• The use case highlights how Veeva’s Data Cloud and analytics modules extend beyond R&D into Commercial execution—a key growth driver.

• Demonstrates cross-sell opportunity and stickiness when a pharma uses both commercial data + field workflows on one platform.

• Reinforces our “brand power & network effect” moat angle.

Strategy and Moat

Veeva’s strategy is rooted in a simple but powerful principle: dominate a vertical by building the deepest, most compliant, most indispensable solutions, then expand adjacently across that vertical’s value chain. Unlike horizontal SaaS players who risk commoditization, Veeva chooses specialization. Its execution has centered on:

• Expanding from sales/marketing (Commercial Cloud) into R&D, regulatory, and quality (Vault).

• Developing proprietary platforms (Vault) to reduce dependency on Salesforce.

• Extending from workflows to data products (Link, Data Cloud).

• Targeting expansion into adjacent regulated industries such as consumer goods and chemicals.

This layered strategy both deepens customer entrenchment and broadens the total addressable market.

Moat analysis

Evaluating competitive advantages through the lens of economic moats reveals strengths in several areas, ranked on a scale of 1 (weak) to 5 (strong):

• Switching Costs (5): Once trial data, regulatory submissions, and safety records are embedded in Vault, switching vendors is virtually impossible without risking compliance breaches. Example: Gilead’s multi-year commitment to Vault CRM highlights the prohibitive costs of leaving. Net Revenue Retention (NRR) >120% confirms strong expansion dynamics.

• Cost Advantage (3): SaaS inherently scales well, but Veeva’s cost advantage is not in raw pricing; rather, it lies in lower compliance costs for customers. By using Veeva, pharma firms reduce the need for custom IT builds and mitigate regulatory risk. However, competitors like IQVIA also leverage scale in data aggregation.

• Regulatory Barriers (4): Veeva designs systems that meet stringent FDA/EMA/ICH standards. Any competitor must replicate not only the functionality but also the documented validation processes.

  Its Public Benefit Corporation (PBC) status signals alignment with regulatory and societal expectations, further strengthening trust.

• Brand Power (4): Among life sciences companies, Veeva has become nearly synonymous with compliance-grade cloud software. Its reputation is strongest in large pharma (19 of top 20 are customers). For newer markets (consumer goods, chemicals), brand equity is not yet established.

• Intellectual Property (3): The core IP is not patents but domain-specific workflow expertise encoded in software. Vault’s architecture is proprietary, but in principle, workflows could be rebuilt. The moat here is weaker than switching costs or regulatory trust.

• Network Effects (2): Veeva benefits modestly from network effects in data products (Link, Data Cloud), where more users improve data accuracy.

  However, the core SaaS products are not true network platforms. Value does not compound significantly as more customers join.

Building the Moat Through Product Expansion

Veeva has actively expanded its moat through targeted product additions. From 2015 to 2020, Veeva systematically added new applications: Veeva Network for master data management, Crossix for marketing analytics, Link for KOL (key opinion leader) engagement, and most recently, Veeva Data Cloud. These moves broadened its suite while reinforcing the moat of integration and customer stickiness. Each new module increased switching costs, as customer data and compliance processes became more deeply embedded in the Veeva ecosystem.

Porter’s Five Forces

A Porter’s Five Forces analysis further contextualizes the strategy:

• Threat of New Entrants (Low): The barriers to entry in life sciences software are extremely high. Vendors must meet strict FDA/EMA validation, master complex domain workflows, and earn deep trust with global pharma and biotech clients.
  This makes true new entry (i.e., from startups or horizontal SaaS vendors) very unlikely. While large incumbents such as Salesforce (through its IQVIA partnership) and Oracle Health are credible competitors, they are existing players rather than new entrants. Their scale and distribution muscle reinforce competitive intensity (see “Competitive Rivalry”), but they do not increase the risk of new entrants.

• Threat of Substitutes (Moderate): Custom-built IT systems remain substitutes for some smaller biotechs, but large pharma is moving away from bespoke software.

  The biggest substitute risk is staying on Salesforce with IQVIA data overlays.

• Buyer Power (Low/Moderate): Pharma companies are large and sophisticated, but their risk aversion lowers bargaining leverage. Since no single customer exceeds 10% of revenue, concentration risk is modest.

• Supplier Power (Low): Veeva’s main “suppliers” are cloud infrastructure providers (AWS, Azure), where it has bargaining leverage as a scale SaaS. Talent is the other supplier: engineering and domain experts are critical, but compensation strategy (equity-heavy) helps retain them.

• Competitive Rivalry (Moderate/High): Veeva faces entrenched competition from IQVIA (partnered with Salesforce), Oracle Health, and specialized niche players in data or clinical management. IQVIA leverages deep data assets and Salesforce’s CRM stack, while Oracle’s legacy systems maintain large installed bases. Yet Veeva’s domain-specific design and single-platform Vault architecture give it strong differentiation. Customer switching is rare once Vault is embedded, keeping churn low despite headline competition.
  

Supply-Side Dependencies

Veeva’s supply chain is straightforward compared to physical businesses, but there are dependencies:

• Cloud Infrastructure: Hosted primarily on AWS, though multi-cloud strategies reduce risk. Bargaining power lies with Veeva given scale and mission-critical workloads.

• Human Capital: Domain expertise in life sciences is non-negotiable. Recruiting scientists, regulatory experts, and engineers is vital. This creates competition with biotech firms and other SaaS companies for talent.

• Third-Party Data Providers: For Data Cloud, partnerships with external data suppliers complement proprietary datasets. Any disruption could affect product completeness.

Strategic Priorities

• Vault Expansion: The core growth driver. Every new Vault module (e.g., Safety) expands wallet share and increases customer stickiness.

• CRM Migration: A risky but necessary move. Strategic independence from Salesforce ensures long-term control.

• Data Cloud & Link: Position Veeva as not just a workflow provider but a data intelligence platform.

• Industry Diversification: Initial experiments in consumer products and chemicals could double TAM, but require careful cultural and product adaptation.

Achieving Platform Independence: CRM Migration

A key strategic priority is the ongoing migration of CRM off Salesforce’s platform and onto Vault infrastructure. The move was driven by both strategic independence and the desire to unify all of Veeva’s offerings on a single underlying platform. The migration was not without risk: customers were accustomed to the Salesforce-based system, and competitors such as IQVIA partnered with Salesforce to launch alternative solutions. Nonetheless, Veeva believed that controlling its own technology stack was essential for long-term innovation and profitability. This migration is still ongoing and remains a focal point of investor discussions. Let’s dig in a bit more why this is still a focal point:

1. Strategic Upside (Why It Could Benefit Veeva)

   1. Platform control = higher margins & innovation speed: By moving from Salesforce’s platform to its own Vault architecture, Veeva eliminates recurring licensing fees and dependency on another company’s roadmap. Over time, this improves gross margins and lets them innovate faster, adding AI, analytics, and data integrations purpose-built for life sciences.

   2. Unified ecosystem: Having CRM, content (Vault), and data products on one platform means tighter integration, lower maintenance for customers, and a stronger moat. It’s similar to what Microsoft achieved with its unified stack.

   3. Long-term differentiation: Competitors like IQVIA still depend on Salesforce, so Veeva’s independence could become a structural advantage if the migration succeeds smoothly.

2. Execution Risk (Why Investors Are Watching Closely)

   1. Migration complexity: Thousands of pharmaceutical field reps and medical liaisons worldwide rely on Veeva CRM daily. Transitioning them to a new platform without disruption is technically and operationally difficult.

   2. Timing and adoption: The full migration is taking years, and investors are monitoring whether customers will re-sign with Veeva once their Salesforce contracts expire (some extend into 2025–2026).

   3. Competitive window: The slower the transition, the more time competitors (especially IQVIA + Salesforce) have to poach clients or position alternatives.

In short: it’s a focal point because the stakes are high on both sides. Success would strengthen Veeva’s strategic independence and profitability; delays or customer churn could dent near-term growth and sentiment.

Independence from Salesforce

A significant turning point arrived in 2021 when Veeva announced plans to migrate its CRM from Salesforce’s platform to Vault CRM. This strategic move underscored the company’s long-term ambition to control its full technology stack. While the transition carried risks, customer resistance, execution challenges, it reflected confidence in Vault’s maturity and Veeva’s ability to stand fully on its own.

Long-Term Vision

Gassner often emphasizes that Veeva is “built to last 100 years.” This philosophy translates into steady execution, patient capital allocation, and a refusal to chase fads. The PBC designation underscores this vision, aligning long-term strategy with broader stakeholder trust.

For investors, the key takeaway is that Veeva’s strategy is both defensive (moats, stickiness, regulatory barriers) and offensive (expanding TAM, moving into data, diversifying industries).

Customer base

Who Are the Customers?

Veeva’s customer base is concentrated in one vertical: life sciences. As of 2025, the company serves over 1,000 organizations, including 19 of the top 20 global pharmaceutical companies. The rest of the base consists of mid-sized pharma, biotech startups, contract research organizations (CROs), and, increasingly, adjacent regulated industries such as consumer goods and chemicals.

The decision-makers are typically senior executives in commercial, regulatory, or R&D functions. For example:

• Chief Medical Officers and clinical operations leaders choose Vault Clinical.

• Regulatory affairs executives rely on Vault Regulatory.

• Chief Commercial Officers select CRM and Commercial Cloud products.

• Quality directors manage manufacturing and lab workflows with Vault Quality.

This concentration of decision-making at the executive level underscores Veeva’s position as a must-have enterprise platform, not a point solution.

Retention and Expansion

Customer loyalty is exceptionally strong. Veeva consistently reports net revenue retention (NRR) above 120%, meaning existing customers not only renew but expand their spend each year. Retention is supported by:

• Mission-critical functionality — systems embedded in regulatory filings and clinical submissions cannot be turned off.

• Expansion across modules — once a customer adopts one Vault product, it becomes natural to add others (Clinical → Quality → Regulatory).

• Switching costs — migrating terabytes of regulatory data from Vault would entail enormous risk and expense.

While the majority of revenue is subscription-based and recurring (~80–85%), the non-recurring portion (professional services) is actually a growth signal, since service work usually precedes new product adoption.

Revenue Concentration

One key strength of Veeva’s base is diversification. No single customer accounts for more than 10% of revenue, and even the largest contracts with top pharma firms are spread across multiple geographies and business units. This reduces concentration risk and ensures no single client has undue bargaining power.

The customer mix also spans the industry lifecycle: large pharma provides stable, long-term revenue, while biotech startups contribute growth but with higher churn. CROs are another growing segment, using Vault to streamline operations for their own clients.

Given the lack of granular segmentation, one can only estimate the split. Based on cues:

• Because Veeva highlights having both large pharma and “emerging” biotech clients, the mix likely leans toward enterprise / large pharma as the majority — partly because large players have deeper pockets, multi-module needs, and more stable funding.

• The fact that no single customer exceeds 10% of revenue suggests Veeva avoids overdependence on any one large pharma, but that doesn’t imply the count of enterprise vs biotech is balanced.

• The number of customers (1,477) suggests many customers are smaller — so even if many are emerging biotechs, they may represent a smaller share of revenue.

• A plausible rough assumption might be 20–40% of customers are emerging biotech / growth-stage companies, with 60–80% being mid/large pharma, but that is speculative.

Geographic Reach

Veeva has built a global footprint to follow its customers. Revenue distribution is approximately:

• North America: ~55%

• Europe: ~30%

• Asia-Pacific and Rest of World: ~15%

This global spread reflects the fact that drug development and commercialization are increasingly international. Regulatory filings often require simultaneous submissions to multiple agencies, and Veeva’s platform supports this complexity. Local sales teams and services staff support adoption in markets like Japan, China, and India.

The “Must-Have” Factor

Veeva’s solutions are not discretionary IT purchases; they are embedded in mission-critical workflows. For example:

• A drug cannot move through Phase III trials without a compliant trial master file, which Vault Clinical manages.

• Regulatory filings to the FDA or EMA require precise documentation stored and tracked in Vault Regulatory.

• Quality issues in manufacturing, tracked in Vault Quality, can trigger product recalls if mishandled.

For customers, Veeva is not simply a productivity tool but a compliance safeguard. This gives the company resilience against budget cuts and downturns. Even in weaker biotech funding cycles, clients are reluctant to remove or replace Veeva systems once implemented.

Case Study: Biotech Expansion

A mid-sized biotech developing oncology therapies illustrates the expansion path. Starting with Vault Clinical for trial management, the company added Vault Regulatory as it prepared for FDA submissions. Post-approval, it layered on Vault Quality for manufacturing oversight. Within five years, Veeva’s ACV with this single client expanded more than 3x, all while reducing compliance risk. This type of land-and-expand story is common and explains why NRR exceeds 120%.

Customer Risks

There are, however, risks in the customer base:

• Smaller biotech churn: Biotechs reliant on venture funding may cancel or delay projects in downturns.

• CRM migration uncertainty: Some commercial clients are cautious about leaving Salesforce for Vault CRM. Competitors like IQVIA-Salesforce could peel away new deals.

• Expansion to new industries: While life sciences adoption is proven, success in consumer goods or chemicals is not guaranteed. Cultural differences in those industries may challenge Veeva’s sales approach.

Summary

Veeva’s customer base is broad, diversified, and sticky. With >1,000 clients across the pharma value chain, 120%+ NRR, and no single customer concentration, the business enjoys both stability and growth. The “must-have” nature of its products means Veeva occupies a privileged position in IT budgets, especially in large pharma. Expansion into adjacent industries offers upside, though execution risk remains.

For investors, the strength of the customer base is one of the clearest validations of the durability of the business model.

Industry Context

Market Structure

Veeva operates at the intersection of enterprise SaaS and life sciences IT, a market that is both massive and highly specialized. Global pharma and biotech companies collectively spend tens of billions annually on IT systems, spanning R&D, regulatory, commercial, and data analytics. Unlike most enterprise software categories, this is not a fragmented SMB market but an oligopoly-like environment: a few large vendors dominate, while barriers to entry are high due to regulatory complexity.

The industry can be divided into three main competitive domains:

1. Commercial CRM and marketing solutions.

2. Content and regulatory platforms for R&D and compliance.

3. Data and analytics providers.

Veeva has built leadership in the first two and is pushing into the third, where incumbents are entrenched.

Competitors

The competitive landscape features a mix of direct rivals, partial substitutes, and potential disruptors:

• IQVIA: The most formidable competitor, especially in data and analytics. IQVIA combines clinical trial services, real-world data, and analytics into a massive offering. Its partnership with Salesforce to launch life sciences CRM poses the most direct threat to Veeva’s Commercial Cloud. Still, IQVIA lacks a true equivalent to Vault, where Veeva’s advantage is strongest.

• Salesforce: Once an enabler through its Force.com platform, Salesforce is now a competitor via the IQVIA alliance. However, Salesforce’s horizontal DNA limits its ability to specialize at the depth Veeva requires.

• Oracle: Competes in clinical trial management systems through its acquisition of Phase Forward and Cerner. Oracle’s solutions are older, more fragmented, and less cloud-native than Veeva’s, but its deep customer base remains relevant.

• Medidata (Dassault Systèmes): A strong competitor in clinical trial software. Medidata’s Rave EDC (electronic data capture) system remains widely used. However, Medidata has struggled to match Vault’s breadth across regulatory and quality domains.

• Smaller Niche Vendors: Companies like ArisGlobal, Sparta Systems (acquired by Honeywell), and MasterControl compete in specific niches like safety or quality management. These players often focus on SMB biotechs or mid-sized pharma but rarely challenge Veeva in global accounts.

Market Share and Positioning

Veeva’s share of the life sciences SaaS market is difficult to quantify, but several data points illustrate its leadership:

• In Commercial Cloud CRM, Veeva commands ~80% share among large pharma salesforces, far outpacing IQVIA/Salesforce.

• In Vault Regulatory Information Management, over 450 companies use its solutions, making Veeva the de facto standard.

• In Quality and Clinical, Vault adoption continues to expand, though Medidata and Oracle retain footholds.

• In data, however, IQVIA dwarfs Veeva. IQVIA’s datasets are unmatched in scale, and while Veeva Data Cloud is growing, it remains a challenger. Veeva’s strategy is not to replicate IQVIA’s breadth but to integrate data directly into workflows, creating a stickier combined product.

  

Industry Trends Favoring Veeva

Several macro trends reinforce Veeva’s positioning:

• Shift to Cloud: Life sciences companies historically relied on on-premise, bespoke IT. The pandemic accelerated cloud adoption, and regulatory bodies now encourage electronic submissions. Veeva, as a cloud-native vendor, is a natural beneficiary.

• R&D Complexity: Drug development costs are rising, with trials spanning more sites, more data, and tighter regulations. Tools like Vault Clinical and Vault Quality directly address these challenges.

• Globalization of Pharma: As companies expand trials into Asia and emerging markets, compliance complexity multiplies. Veeva’s globalized, validated cloud is better suited than local IT teams patching together solutions.

• Data as Competitive Edge: Pharma firms increasingly compete on data insights, not just molecules. This underpins the rationale for Veeva Data Cloud and Link.

• Industry Consolidation: M&A in pharma drives demand for standardized platforms. A merged entity adopting different IT systems often consolidates onto Veeva Vault.

Risks from Industry Dynamics

The industry context also highlights risks:

• Rival Platforms: If Salesforce-IQVIA CRM gains traction, Veeva’s dominance in Commercial Cloud could erode. This is the most visible competitive battle.

• Data Scale: Competing with IQVIA in real-world data will require significant investment. Veeva risks being a niche player unless it scales quickly.

• Regulatory Changes: Stricter or shifting rules could create both opportunity (need for new modules) and risk (compliance costs).

• Tech Giants: Microsoft, Google, or Amazon could enter regulated vertical SaaS with cloud-native products. While unlikely in the short term, their scale could challenge Veeva in the long run.

Comparisons to Broader SaaS

Relative to horizontal SaaS peers, Veeva’s model is unusual:

1. Profitability: Few SaaS companies maintain net margins >25% while still growing >15%. Veeva consistently does.

2. Valuation: At ~35x forward FCF, Veeva trades at a premium to peers like Salesforce (~20x) or ServiceNow (~28x), but a discount to its pandemic peak multiples (>70x).

3. Durability: The vertical SaaS model, coupled with life sciences’ inelastic IT demand, makes Veeva more durable than most enterprise SaaS firms.

Industry Outlook

Analyst reports project the life sciences IT market to grow at ~12–15% CAGR over the next five years. Drivers include clinical trial digitization, regulatory modernization, and rising biologics pipelines. This aligns closely with Veeva’s own growth guidance, which is close to 17% CAGR.

Veeva’s challenge will be balancing its dominance in a niche with expansion into new markets. If it can replicate Vault’s success in adjacent industries, growth could accelerate. If not, it risks being boxed into life sciences, a market it already heavily penetrates.

Summary Industry Context

The industry context reveals both why Veeva has flourished and what it must overcome:

• It dominates life sciences SaaS in CRM and regulatory/quality.

• It faces serious competition in data from IQVIA.

• The cloud migration trend, regulatory complexity, and pharma globalization all favor its model.

• However, valuation demands that it expand beyond its current base to sustain growth.

For investors, the competitive backdrop is supportive, but the question is whether Veeva can leverage its position to win in data and adjacent industries without diluting focus.

Growth Drivers

Expansion of Vault

The single biggest growth driver remains Vault adoption and expansion. Veeva has steadily transformed Vault from a content management system into an end-to-end platform covering clinical, quality, regulatory, and safety functions. Each module a customer adopts increases average contract value and embeds Veeva deeper into workflows.

For example, a mid-sized biotech might start with Vault Clinical to manage trial master files. As it approaches regulatory submission, it adds Vault Regulatory. Once the drug is approved, it rolls out Vault Quality to oversee manufacturing compliance, and later Vault Safety to track adverse events. Each step adds revenue streams and increases switching costs.

Because pharma pipelines are continuous and multi-year, the opportunity for expansion within existing customers is durable. Analysts estimate Vault penetration is still only 30–40% of its full TAM, leaving room for significant growth.

CRM Migration and Renewal

Although CRM is a mature product, the migration off Salesforce represents both a risk and a growth lever. If executed successfully, Veeva can increase margins by eliminating Salesforce licensing costs and creating a unified platform across CRM and Vault. Customers who follow Veeva to Vault CRM will further lock in, reducing reliance on third-party infrastructure.

Additionally, CRM contracts provide ongoing opportunities for upsell via digital engagement tools like Engage Meeting and Approved Email, which grew sharply during COVID-19 and remain part of hybrid salesforce strategies.

Data Cloud and Link

The next frontier is data and analytics. While Veeva’s workflow products generate stable cash flows, the data market offers incremental growth.

Veeva Data Cloud provides longitudinal patient and prescriber data. Though IQVIA remains the incumbent, customers value having integrated data inside the same workflows where they run trials and regulatory submissions.

Veeva Link builds networks of medical experts and scientific influencers, helping clients identify key opinion leaders for drug launches.

If these products capture even modest share, they could grow into billion-dollar businesses. The combination of workflow + data creates a differentiated proposition IQVIA cannot fully replicate, since its data is often standalone.

Geographic Expansion

Pharma is increasingly global. Trials in Asia-Pacific, submissions to regulators in China or Brazil, and global supply chains demand consistent compliance platforms. Veeva has expanded operations in Europe and Asia, and is investing in localized versions of Vault to meet country-specific regulations.

This geographic growth contributes both to new logo wins and upsells for global deployments. For example, a U.S.-based pharma may roll out Vault Clinical in North America, then expand to Europe and Asia to harmonize trial management globally.

Pricing Power

Though Veeva does not emphasize aggressive pricing, its products exhibit pricing power because they are mission-critical. Price increases are often accepted because alternatives are riskier and more costly in compliance terms. While unit pricing may not rise dramatically, expansion across modules effectively increases customer spend.

Adjacent Industries

Veeva has begun targeting other regulated verticals, including consumer goods, chemicals, and cosmetics. These industries also face quality management and regulatory documentation challenges, though the stakes are less existential than pharma drug approvals. Success here could expand TAM materially, though execution risk remains high.

The opportunity is particularly strong in quality management, where Vault Quality could serve as a cross-industry compliance platform. Early wins in consumer products validate the potential.

M&A

Historically, Veeva has been conservative in acquisitions. It prefers to build rather than buy. However, small tuck-ins, especially around data, could accelerate growth. Acquiring niche datasets or analytics capabilities would bolster Veeva Data Cloud, helping it compete more effectively with IQVIA.

AI as a Growth Catalyst

Veeva’s latest investor presentations emphasize AI as a driver of both efficiency and expansion. Within Vault, AI models are being embedded for intelligent document processing, metadata extraction, and predictive compliance checks. In Data Cloud and Link, AI enhances relationship mapping, scientific insight generation, and trial site optimization. These initiatives are early but could lift growth toward the high end of management’s 17% CAGR trajectory if adoption accelerates across enterprise accounts.

Long-Term Guidance

Management has guided to mid-teens revenue growth for the next two years, and recently outlined a long-term revenue target of $6 billion by FY2030, implying a ~17% CAGR from FY2026–FY2030. This sits above our 13–15% conservative base case and suggests meaningful upside if AI-driven automation and new product modules scale as intended.

Veeva’s Q2 FY 2026 results delivered 17% year-over-year growth in revenue, and management updated FY 2026 guidance to $3,134M–$3,140M, with non-GAAP operating income of ~$1,388M. In the Q1 FY 2026 release, the company expected revenue of $3,090M–$3,100M and EPS of ~$7.63.

Taken together, a long-term model assumption of 13–15% CAGR lies between management’s near-term guidance and historical performance, making it a prudent conservative case rather than an optimistic stretch.

Recent Expansions and Challenges

In recent years, Veeva has expanded beyond life sciences into other regulated industries such as consumer products and chemicals, though life sciences remains the vast majority of revenue.

It has also invested heavily in data and analytics, launching Veeva Data Cloud and Veeva Link, which provide longitudinal patient and physician data as well as scientific relationship networks. These products extend Veeva’s role from a workflow enabler to a data provider, competing with incumbents like IQVIA but leveraging its strong customer relationships to win market share.

Despite these successes, challenges have emerged. The CRM migration has created uncertainty, some new modules have faced slower adoption, and the valuation multiples attached to Veeva stock have compressed from their 2020–2021 highs.

Nonetheless, the company’s strategic direction remains intact: expand its footprint across the drug development lifecycle, leverage proprietary platforms, and continue delivering durable, highly profitable growth.

Summary Growth Engine

The growth engine is multi-faceted:

1. Vault expansion remains the dominant lever.

2. CRM migration could unlock margin gains and customer stickiness.

3. Data Cloud and Link offer long-term upside in analytics.

4. Geographic expansion broadens deployment opportunities.

5. Adjacency into other industries could materially increase TAM.

6. Selective M&A provides optionality in data.

7. AI a driver of both efficiency and expansion

For investors, the key question is whether Veeva can sustain double-digit growth long enough to justify its premium valuation. The ingredients are in place, but execution on Data Cloud and CRM migration will determine whether growth surprises on the upside.

Financial model & Valuation

Recent Performance

Recent performance shows revenue reaching $2.7 billion in fiscal 2025 with free cash flow margins close to 45%. Veeva now serves more than 1,000 customers, including 19 of the top 20 global pharmaceutical companies, and enjoys net revenue retention consistently above 120%. Importantly, no single customer accounts for more than 10% of revenue, reducing concentration risk.

The story of Veeva’s evolution is one of deliberate focus, disciplined execution, and widening competitive advantage. From a single CRM application built on someone else’s platform, it has grown into a diversified, independent ecosystem for regulated industries. Each stage of this evolution, from IPO, Vault expansion, diversification to Salesforce independence, reinforced its reputation as one of the most durable and predictable business models in enterprise software.

Veeva’s economics are best captured through its cash flow. For the last twelve months:

• Revenue: $2.97B

• Gross Margin: 75.6% - a hallmark of mature SaaS companies

• Operating Margin: 28%

• Net Margin: 27.3%

• Free Cash Flow Margin: 44.7% - minimal capital expenditures needs and efficient working capital dynamics (large upfront billings through unearned revenue).

Cash from operations is $1.35B, while CapEx is minimal (<2% of revenue, often not broken out because it’s so small). Veeva consistently converts more than 100% of net income into free cash flow, thanks to high deferred revenue balances and low reinvestment requirements. Share-based compensation (SBC) was ~$467M, about 16% of revenue. On an owner’s earnings basis (OCF – SBC – CapEx), Veeva generated ~$870M. This aligns with the valuation multiples (P/FCF ~34x).

Veeva’s free cash flow has compounded from ~$550 M in FY 2020 to ~$1.35 B for the last twelve months, underscoring its capital-light model and 40 %+ FCF margins.

The balance sheet is pristine: nearly $6.4 billion in cash and investments, no debt, and steady share count growth only modestly offset by repurchases. Capital allocation is conservative: no dividend, limited buybacks, and no large acquisitions. Instead, management reinvests in R&D (~25% of revenue) to expand Vault modules and AI-driven analytics.

Owner’s Earnings Model

Owner’s earnings adjusts free cash flow to reflect the economic cost of SBC:

• Operating Cash Flow: $1.35B

• CapEx: ~0 (minimal)

• SBC: $467M

• Owner’s Earnings: ~$883M

This suggests that traditional FCF overstates distributable cash because it ignores dilution from SBC. At a market cap of ~$46B, Veeva trades at ~52x owner’s earnings.

While traditional free cash flow paints Veeva as comfortably profitable, adjusting for SBC reveals that true distributable cash is meaningfully lower. At roughly 52× owner’s earnings, the stock prices in a long runway of double-digit growth and disciplined dilution control, expectations that leave little room for execution missteps.

Reverse DCF

With a stock price of ~$285 (October 30, 2025) and a market cap of ~$46.7B, what growth is implied? Assuming:

• Discount rate: 10%

• Terminal growth: 2.5%

• Cash flow CFO: 1.35B

• Owner’s Earnings: $883M

I rhink using Owner’s Earnings DCF is the cleanest, most Buffett-aligned way to handle SBC in my Veeva model without forecasting share count growth. This means SBC is treated as a real economic cost, just like a cash expense, even though it’s non-cash. For year 1 I will take the expected Owners Earnings FCF for next year, which I forecast at $883M * 1.17 = $1,033.

At ~$289 a share the implied 10 year FCF CAGR is 20.4% to achieve a 10% required return. This feels like a sporty valuation given their own expectations closer to 17%.

Discounted Cash Flow

In the discounted cash flow I will discuss the outcome of:

• the conservative scenario where I will take the mid of the 13-15% range, so 14%

• the base case of 17% growth

• the opportunistic case with 19% growth

  

• Base case (~17% growth): the stock is overvalued by 19.7% to get an annual return of 10%, and this doesn’t give even include a margin of safety.

• Conservative case (~14% growth): the stock has an overvaluation of 33.5% and shows an intrinsic value of $192.1 to get to a 10% annual return

• Opportunistic case (19% growth): the stock is 8.8% overvalaued and the intrinsic value is $263.6.

So for none of the scenario’s the current valuation seems justified. As I always prefer a margin of safety, I would go with the conservative case to determine my buy below price, and hence I will take $192.1 which gives a stronger margin of safety. My corresponding annual expected return for the next ten years would be 12%.

Forward P/E and FCF yield

Comparing the forward P/E by the historical trend tells us a bit more about current valuation. Current forward P/E is at 35.8 versus a median of 53.2 the last ten years. A forward P/E of 53.2 is really high and even 35.8 is still at the high end, so it confirms my DCF calculation seeking for a bit more margin of safety.

For Veeva Systems the FCF yield chart shows a stable path between 1-4% over the past decade, with a median of 2.2% and a current yield of 2.9%. For context, the 10-year US Treasury bond yield stands at ~4.2%. So this indicator also shows the current stock price seems to be at the high end.

Risks Tied To The Model

Execution Risk: CRM Migration

Veeva’s CRM is still tied to Salesforce for many customers, though the company is building its own Vault CRM. The migration is a double-edged sword:

• Upside: eliminates Salesforce licensing costs, improves integration.

• Downside: execution missteps could result in customer churn, delays, or cost overruns. If Salesforce attempts to compete more aggressively, pricing pressure could also emerge.

Severity: High. CRM contributes ~40% of revenues and serves as the “front door” into accounts.

Competitive Risk: IQVIA and New Entrants

The data market is dominated by IQVIA, which has entrenched relationships with pharma. While Veeva’s Data Cloud and Link offer integrated workflows, gaining share is not guaranteed. If IQVIA aggressively defends its turf through bundling, Veeva could face slower adoption or pricing concessions.

In workflow software, competitors like Medidata (Dassault Systèmes) and Oracle Health Sciences also play in clinical and trial management. Though less integrated, they remain alternatives for certain customers.

Severity: Medium. Veeva has strong incumbency, but data and analytics expansion is a head-to-head fight.

Customer Concentration and Pharma Cyclicality

While Veeva serves more than 1,000 customers, 19 of the top 20 global pharma companies anchor its revenue base. If a large customer (say Pfizer or GSK) decided to shift budgets, the impact could be material. In addition, biotech funding cycles are cyclical; downturns in biotech capital raising could slow adoption of Vault Clinical and related modules.

Severity: Medium. Concentration is real, but diversification across many functions and customers mitigates this.

Regulatory and Compliance Risk

Because Veeva operates in highly regulated industries, its products must continuously comply with global regulatory frameworks (FDA, EMA, ICH, etc.). Any failure in Vault modules, e.g. in regulatory submissions, clinical trial data integrity, pharmacovigilance, or quality management, could lead to regulatory sanctions, reputational damage, or customer churn. Veeva itself discloses that

“changing laws and regulations … may impose additional costs for compliance, reduce demand for our solutions, and subject us to significant liabilities.” - SEC

Privacy and data protection rules (GDPR, HIPAA, cross-border data localization laws) create additional complexity. The expansion into patient data with Veeva Data Cloud increases exposure, since handling longitudinal patient and prescriber data magnifies the need for strong privacy controls and regulatory safeguards.

In an earlier filing, Veeva notes that the cost of subscription services has increased over time due to rising employee compensation, computing infrastructure, and data costs tied to growing user base and data processing. This suggests that part of the compliance burden (e.g. infrastructure for audit trails, secure data handling) is already baked into operating expenses.

Because these regulatory burdens are ongoing, evolving, and often opaque in advance, we rate the severity as High. It is a constant tail risk and operating burden that must be managed diligently.

Financial Risk: SBC and Dilution

Veeva’s free cash flow generation remains strong, but stock-based compensation (SBC) is a double-edged sword. Over the last twelve months, SBC totaled $467 million, roughly 15.7% of revenue and 35% of operating cash flow. The company’s equity-driven pay structure aligns management closely with long-term shareholders. Executives earn relatively modest base salaries and no cash bonuses, instead receiving equity that vests over multiple years. This fosters a durable, ownership-oriented culture and helps retain key leaders.

However, the economic impact is still tangible. SBC represents a recurring cost of doing business and leads to gradual dilution. Veeva’s share count has risen from 152 million in FY 2020 to 164 million today, growing about 1.5% annually. SBC is a steady 13–16% of revenue, with dilution flattening in recent years. This is evidence of tighter grant discipline and occasional offsetting buybacks.

Even so, persistent SBC at this level means “owner’s earnings” (free cash flow minus SBC) will expand more slowly than reported FCF. While the cultural and incentive alignment is a clear strength, from a valuation perspective, it remains one of the most significant headwinds to per-share value creation.

Severity: High. SBC enhances alignment but weighs on true per-share compounding; Veeva’s challenge is maintaining cultural strength while reducing dilution over time.

Valuation Risk

At ~$289/share, Veeva trades at ~57x trailing earnings and ~34x FCF. Even with strong growth, these multiples imply sustained double-digit expansion for 10 years. If growth slows to high single digits, multiples could compress sharply.

Severity: High. Valuation risk is acute given premium multiples.

Talent and Culture

Veeva’s “team-first” culture, modest base salaries, and equity-heavy compensation align employees with long-term outcomes. However, the tech labor market is competitive, and reliance on equity incentives may weaken if stock performance stalls. Turnover at the executive level, such as the recent CFO transition, adds potential disruption.

Severity: Medium. Mitigated by strong cultural cohesion but dependent on equity value.

Operational Risk: Cloud Infrastructure

As a SaaS company, Veeva depends on cloud infrastructure uptime. Outages or cybersecurity breaches could damage trust, especially since Vault houses mission-critical regulatory documents. The migration off Salesforce also increases internal responsibility for reliability.

Severity: Medium. Standard SaaS risk, but stakes are higher in life sciences.

Geographic and Political Risk

International expansion into Asia and Europe exposes Veeva to local regulations, data sovereignty laws, and political risk. For instance, China’s tightening of data localization could limit adoption of Veeva Data Cloud. Geopolitical tensions could also impact multinational deployment.

Severity: Low-to-Medium. Diversification reduces but does not eliminate this risk.

Summary of Risk Profile

• High Severity Risks: CRM migration, regulatory compliance, stock-based compensation/dilution, valuation.

• Medium Severity Risks: Competition, customer concentration, talent retention, operational reliability.

• Low-to-Medium Severity Risks: Geographic and political expansion.

Overall, Veeva carries execution and valuation risk more than financial health risk. The balance sheet is pristine, with $6.4 billion in cash and no debt. Thus, downside scenarios center on growth sustainability and shareholder dilution rather than solvency.

Investor Takeaways

After evaluating Veeva Systems across its history, management quality, culture, business model, strategy, customers, industry positioning, growth drivers, risks, and financial evolution, we can distill the analysis into five core investor takeaways.

1. Core Strength: Mission-Critical SaaS With High Switching Costs

Veeva’s moat is among the strongest in vertical SaaS. Its Vault platform underpins regulatory submissions, quality control, safety reporting, and clinical operations for nearly every major pharmaceutical company worldwide. Once embedded, switching is nearly impossible without jeopardizing compliance. This produces net revenue retention above 120% and ensures durability of revenue.

2. Key Dependency: Life Sciences Industry Growth

Although Veeva has begun expanding into adjacent regulated industries, its core business remains tethered to biopharma. Roughly 80–85% of revenues are tied to life sciences. If R&D pipelines slow, drug approvals decline, or regulatory structures change, Veeva’s growth could moderate. Diversification efforts into consumer goods and chemicals are still small.

3. Top Growth Driver: Expansion of Vault and Data Cloud

Vault continues to add new modules — clinical trial management, regulatory information management, quality documentation, and safety systems — each of which deepens customer reliance. The Data Cloud and Link initiatives are layering in analytics, AI, and real-world evidence datasets, which could create a second engine of growth over the next five years. Cross-selling remains powerful: most customers start with one module and expand into multiple.

4. Main Risk: Valuation and Share-Based Compensation

The company’s quality is not in doubt — but at ~34x forward free cash flow and ~35x forward earnings, the stock requires sustained double-digit growth for a decade. If growth slows toward mid-single digits, multiples will compress. Additionally, share-based compensation (~$470 million in FY2025) is material. While normalized free cash flow is strong, dilution remains a real concern for shareholders.

5. Biggest Unknown: AI’s Role in Future Growth

Veeva is investing heavily in AI-driven insights, data harmonization, and intelligent document processing. While this could enhance stickiness and create new revenue streams, the timing and magnitude are uncertain. If Veeva fails to monetize AI meaningfully, investors may reassess the growth story. Conversely, if AI modules become indispensable, growth could reaccelerate above expectations.

Final Conclusion

Veeva is one of the most durable SaaS businesses globally, but valuation and reliance on one vertical temper its score. We will have to wait for the stock price to come down to become an owner of this high quality SaaS company.

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Disclaimer

The information in this article is provided for informational and educational purposes only.

The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.

None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. The author is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.

• A 3-year 42% CAGR Potential: GetBusy offers a compelling risk-reward profile, with a projected 42% annualized return over three years, driven by SmartVault’s sale at 5-10x ARR multiples, potentially yielding £150 million in cash distributions (~3-4x current £42 million market cap).

• Management Aligned with Shareholders: Insiders, including CEO Daniel Rabie (6.4% stake), have invested ~£3 million in 2025, latest at 82-83 pence, signaling strong conviction; the Leadership Incentive Plan ties rewards to $90-250 million sale proceeds by 2028.

• SmartVault ARR Growth Acceleration: SmartVault’s H1 2025 ARR reached $15.6 million (9% growth), with 14-18% CAGR guided through 2028, fueled by partnerships, Thomson Reuters’ FileCabinet CS sunset, and AI-driven upsells, targeting $20-23 million by sale.

• Attractive Exit Multiples for SmartVault: Sector M&A precedents support a 5-10x multiple on SmartVault’s projected $20-23 million ARR, implying $100-230 million in proceeds, significantly above the current market cap.

• Defensive Financial Profile: 97% recurring revenue (£21.1 million ARR in H1 2025), 100% net revenue retention, <1% monthly churn, mid-80% gross margins, and cash-neutral operations (high operational leverage upcoming) provide stability rare in microcaps.

• Workiro as a Long-Term Growth Engine: Post-SmartVault sale, Workiro’s £9.6 million ARR (40% product-specific growth in H1 2025) positions it for £50-100 million valuation at 5-7x ARR, enhancing residual upside.

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GetBusy Plc - A Calculated Situation

In general my focus is on prioritizing companies with durable competitive advantages, predictable cash flows, and aligned management teams. I’m inherently cautious about microcaps. These often come laden with risks: illiquidity, volatile earnings, and unproven strategies that promise outsized returns but rarely deliver.

Promises of 42% annual returns over three years? They typically trigger my skepticism alarms, evoking memories of overhyped stories that fizzle amid execution failures or market whims. Yet, after a deep dive into GetBusy plc (AIM: GETB), a UK-listed productivity software provider with a modest £42 million market cap, I find myself compelled to make an exception. This isn’t a speculative bet on moonshot growth; it’s a calculated special situation where tangible catalysts, management incentives, and sector tailwinds align to unlock substantial value.

In a market saturated with overvalued tech darlings, GetBusy offers a rare blend of defensiveness (97% recurring revenue, low churn) and asymmetry (potential 3x+ returns via asset monetization). Let me explain why this microcap has earned a spot in my portfolio, and why it might deserve yours.

A Niche SaaS Leader with Proven Resilience

GetBusy plc operates in the under-the-radar world of professional services productivity software, serving accountants, tax professionals, and enterprises with tools that streamline document workflows and compliance. Founded via a 2017 demerger from Reckon Limited and listed on London’s AIM market, the company has quietly built a portfolio of high-margin SaaS products.

Its crown jewel, SmartVault, dominates the U.S. market (51% of 2023 group revenue at £10.9 million), providing cloud-based document management, client portals, e-signatures, and form-fill solutions tailored for tax and accounting firms. What sets it apart? Deep integrations with industry stalwarts like Intuit’s ProSeries, Lacerte, ProConnect, and Thomson Reuters’ UltraTax CS create a moat of switching costs, once embedded, alternatives disrupt workflows, ensuring revenue retention and customer churn below 1%.

Complementing this is Workiro, the enterprise arm (45% of H1 2025 ARR at £9.6 million), which merged with legacy Virtual Cabinet operations to target the £1 billion+ ERP content management space. Anchored in Oracle NetSuite (serving 41,000+ customers), Workiro offers AI-powered task automation, approvals, and secure sharing, with product-specific ARR surging 40% year-over-year in H1 2025. While flat overall due to UK/ANZ churn, automated migrations and AI enhancements position it for scalability.

Financially, GetBusy exemplifies quality: 97% recurring revenue (ARR at £21.1 million in H1 2025, up 5% constant currency), mid-80% gross margins, and cash-neutral operations since IPO. No single customer exceeds 1% of revenue, diversifying risk in a recession-resistant niche, professionals can’t afford downtime in tax season. This stability, often absent in microcaps, underpins my conviction.

The Dual-Track Strategy: Near-Term Monetization Meets Long-Term Growth

GetBusy’s playbook resembles a private equity firm more than a typical SaaS operator: CEO Daniel Rabie, with his Reckon background, is engineering a two-stage value unlock.

Near-term, the focus is on accelerating SmartVault’s ARR to prime it for a sale, targeting £150 million in cash distributions to shareholders—3-4x the current market cap. This isn’t pie-in-the-sky; it’s tied to the 2023 Cash Distribution Plan (CDP) and Leadership Incentive Plan (LIP), which reward management for hitting milestones by 2028.

Long-term, Workiro remains as a standalone growth engine, potentially valued at £50-100 million based on ERP peers (e.g., 5-7x ARR).The realism? SmartVault’s H1 2025 ARR hit $15.6 million (9% growth), with management guiding 14-18% CAGR through 2028, implying $20-23 million by sale time. At conservative 5-7x multiples, this yields $100-160 million proceeds; management’s cited 8-10x (aligned with sector comps) pushes to $160-230 million. Midway ($120 million) within three years equates to ~42% annualized returns, excluding Workiro’s residual value.

Skeptical? I was too, until dissecting the catalysts.

Catalysts Driving SmartVault’s ARR Acceleration

SmartVault’s growth isn’t reliant on broad market expansion; it’s fueled by targeted, high-probability tailwinds visible in H2 2025. Management’s September 2025 H1 results call out “material acceleration” ahead, and recent insider buys reinforce this.

1. Ecosystem Partnerships: The Karbon-Ignition Tie-Up
   Announced July 29, 2025, this collaboration with Karbon (practice management) and Ignition (client engagements/payments) forms the first fully integrated ecosystem for Intuit ProConnect users. Building on SmartVault’s existing hooks, it enables seamless contact sync, e-signatures, auto-routing, and storage, reducing workflow silos. For firms juggling fragmented tools, this is transformative. Even 5-10% adoption among ProConnect’s user base could add $2-4 million to ARR within 12-18 months, per conservative estimates. Last Wednesday SmartVault announced the launch of the integration with Intuit ProConnect Tax. A huge milestone. As a quality investor, I value such partnerships: they enhance stickiness without heavy capex.

2. Forced Migrations from Thomson Reuters’ FileCabinet CS Sunset
   Thomson Reuters’ December 31, 2027, EOL for FileCabinet CS, a legacy desktop DMS, affects 10,000-15,000 users, prompting transitions. SmartVault, with its UltraTax integrations, is ideally positioned; management highlights this as a “key growth driver” for H2 2025 acceleration. Early migrations (e.g., Rozovics Group to IRIS, O’Connor and Agar CPA to SmartVault) show users favoring cloud alternatives. Capturing 15-30% could add $2.5-5.0 million ARR, a tailwind Thomson’s SurePrep acquisition (2022, $500 million) doesn’t fully block, as SurePrep focuses on tax automation, not broad DMS.

3. AI Innovation: SmartRequestAI Launch
   Rolled out July 23, 2025, for Fall 2025, this AI tool automates client intake via personalized questionnaires from prior-year returns, targeting SmartVault’s 23,000+ U.S. tax preparers. Priced as add-on bundles, it’s an upsell play: CEO Rabie calls it a “gamechanger” for monetization. In a market craving efficiency amid labor shortages, this could drive $3-5 million incremental ARR in 12 months, with high margins.

These aren’t speculative; H2 2025 visibility, with three months in, aligns with management’s confidence, evident in insider activity (see below). The increase in ARR, because of these three events, could end up between $7.5M - $14.0M, or GBP 5.6M - GBP 10.4M.

Management

GetBusy plc’s management team is compact and experienced, led by executives with deep SaaS and tech backgrounds, emphasizing alignment with shareholder value through performance-tied incentives. The board comprises six members: two executives and four non-executives (three independent), ensuring balanced oversight.

CEO Daniel Adam Rabie, appointed July 2017, drives strategy as the demerger architect from Reckon. With a career starting in corporate advisory, he advanced to senior roles in startups and cloud tech, becoming Reckon’s Strategic Director in 2010 and COO in 2015. There, he oversaw IT, development, marketing, and HR across four countries, delivering online accounting and document solutions. Rabie’s tenure at GetBusy has focused on SaaS scaling, with ARR growing 15% CAGR since IPO. His 2024 salary was £265,000 (up from £258,000 in 2023), with bonuses capped at 125% of salary linked to 10-20% ARR growth targets.

CFO and Company Secretary Paul Haworth, appointed April 2018 post-IPO, manages finance, operations, IT, cybersecurity, and investor relations. A chartered accountant with a UCL Astronomy degree, he spent 10 years at Deloitte advising tech M&A clients, followed by senior finance roles at listed firms like Consort Medical and Dialight. Haworth has steered cash neutrality, with net cash from operations rising to £1.5 million in 2024. 2024 salary: £212,000; bonuses up to 100% of salary on ARR metrics.

Non-Executive Chairman Dr. Miles Jakeman AM, appointed July 2017, provides strategic guidance. Co-founder of Citadel Group (ASX-listed 2014, sold 2020 for £284 million), he advises on strategy, risk, and security, serving on audit and remuneration committees.

Senior Independent Director Nigel Payne, also July 2017, chairs remuneration and sits on audit. Ex-CEO of Sportingbet (acquired by GVC), with 10+ IPOs and 20+ M&A deals; IMD MBA and Bristol economics/accounting degree.

Non-Executive Directors Paul Huberman (March 2020, audit chair) and Clive Rabie (June 2017) add finance and IT/retail depth. Huberman, ex-FD of LSE-listed firms, is a chartered accountant; Clive Rabie, ex-Reckon CEO, provided a £2 million facility (expanded 2024).

Management Alignment: Insider Buys Signal Conviction

Rabie and team aren’t just talking; they’re buying. Since September 2025, insiders purchased ~£3 million worth at 82-83 pence—the year’s high—boosting stakes (Rabie to 6.4%).

With family ties (father Clive at 23%), this skin-in-the-game mitigates agency risks common in microcaps. The Long Term Incentive Plan (LIP) ties rewards to $90-250 million proceeds, ensuring focus on value creation.

Valuation: Realistic Multiples Back the Upside

Sector M&A validates the exit path. Thomson Reuters paid 8.3x ARR for SurePrep ($500 million on $60 million, 2022); Wolters Kluwer shelled 9.6x recurring for XCM Solutions (€136 million, 2020) and 4.7x for IDS ($70 million, 2022). SmartVault’s synergies (e.g., for Wolters or Thomson) warrant 5-10x, especially post-growth. A $20 million ARR sale at 6x yields $120 million, nearly 3x market cap, pre-Workiro. Timing? LIP incentives vest on sales before end of 2028, aligning management to act.

Reverse DCF

Starting with known data points and working backwards to assess market expectations and judge whether these expectations are realistic.

A reverse discounted cash flow (DCF) approach starts with the current enterprise value and works backward to derive the growth rates embedded in the market’s pricing, offering a lens to evaluate if those expectations are overly conservative or optimistic. By solving for the implied FCF growth required to justify the current market cap, the model assumes a year 1 FCF based on a 6% increase in revenue for 2025, which was 3% as per half year, but given the catalysts for the increase in ARR I expect 6% this year, resulting in an unlevered FCF of 2.9M GBP. With a 10% desired return and a 2.5% perpetuity growth rate this results in a market expectation of a growth rate of 3.25% for the next ten years based on todays price of 82 pence.
As management targets a 14-18% CAGR next years for SmartVault, I think the marekt undervalues Getbusy’s potential.

Discounted Cash Flow

To determine the undervaluation I have prepared a DCF model, where I assumed the business will continue like it is. This is not the strategy of management, but let’s assume management won’t be able to sell SmartVault and the growth year 6-10 is just 5%. Then the undervaluation is 42.5%.

So currently Getbusy trades at a discount which gives an investor a perfect margin of safety of 42.5%. If management succeeds in selling SmartVault, then this will return even more to shareholders. It feels like a free call option on the benefits of the sale of the business, which to me is the likely outcome of the strategy.

Risks: Acknowledged, but Mitigated

Microcaps aren’t risk-free: AIM illiquidity (free float ~20.8 million shares), execution slips (e.g., Workiro churn), or delayed sales could disappoint. Yet, GetBusy’s 97% recurring revenue, diverse customers, and cash generation buffer volatility. No debt overhang, and recession-proof demand add quality layers. The negative equity of -2.2M per end of 2024 (losses from the past) is something to watch, but it’s minimal and as ARR is improving this should improve bottom line and hence improve the equity position.

• Strategic and Commercial Risks: GetBusy faces risks from new product development failures, obsolescence of Virtual Cabinet’s on-premise architecture, inability to realize divestments like SmartVault, and over-reliance on external partners for sales channels and integrations, potentially leading to reduced growth, customer churn, and missed revenue opportunities; mitigations include agile development, cloud migrations, strategic focus on high-value markets, and diversified partnerships.

• Operational, Legal, and Financial Risks: Key concerns include data security breaches, technology failures, challenges in recruiting/retaining personnel, and cash flow constraints amid breakeven profitability, which could result in regulatory fines, revenue loss, higher costs, or funding shortfalls; controls involve certifications (e.g., ISO 27001, SOC2), rigorous testing, competitive incentives, and cash-generative SaaS models with extended credit facilities.

Why This Microcap Breaks the Mold

In a quality portfolio, GetBusy fits as a high-conviction asymmetric investment: downside protected by assets (net cash £0.2 million, ARR visibility), upside catalyzed by near-term events. Unlike typical hype, the 42% annualized path stems from math: ARR growth + multiples + distributions. As we approach March 2026 results, H2 2025 momentum could propel shares higher. I’m enthusiastic because this isn’t gambling; it’s investing in a mispriced opportunity where probabilities favor us. Near-term strategy is in growing and selling SmarVault and long-term management can do the same trick with Workiro. For those seeking quality with punch, GetBusy demands your attention.

Disclaimer

The information in this article is provided for informational and educational purposes only.

The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.

None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. The author is not responsible for any mistakes or investment decision made by you. You are responsible for your own investment research and investment decisions.

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Introduction

My Quick Scan recently evaluated M&A Research Institute, a Japanese company that brokers mergers using AI matching, and assigned it an exciting Investment Readiness Score of 93.4, signaling a company worthy of a detailed deep dive.
I even started a position already, be it a minor one, as the margin of safety was that high that the risk-return ratio was very positive in my opinion.

In this analysis, I will explore M&A Research Institutes history, leadership, culture, business model, competitive advantages, financial health, risks, and valuation to determine its potential as a long-term quality investment. Let’s dive in.

History of the Business

In the landscape of Japan’s mergers and acquisitions sector, M&A Research Institute Holdings Inc. stands out as a relatively young entity that has rapidly ascended to prominence by addressing a profound structural challenge within the country’s economy.

Founded on October 12, 2018, in Tokyo’s Shibuya district by Shunsaku Sagami, the company emerged at a time when Japan’s small and medium-sized enterprises were grappling with an acute succession crisis. With an aging population and a declining birth rate, many business owners in their 60s and 70s faced the daunting prospect of closing viable operations due to a lack of heirs, leading to an estimated 50,000 to 70,000 business closures annually that could otherwise be preserved through strategic transfers.

Sagami, drawing from personal experiences including his grandfather’s failed attempt to succession his real estate business, positioned the firm to fill this gap by offering innovative, technology-driven M&A intermediation services focused on efficiency and accessibility.

The early phase of the company’s development was marked by strategic acquisitions and operational consolidation to build a robust foundation. Just six months after its inception, in April 2019, M&A Research Institute acquired all shares of Contact K.K., a firm specializing in M&A-related media and web marketing platforms. This move was pivotal, as it integrated digital capabilities into the core brokerage model, enabling the company to attract leads through online channels and enhance visibility among potential clients.

By May 2019, Contact K.K. was fully absorbed as a subsidiary, streamlining operations and eliminating overlapping functions while expanding the firm’s service portfolio to include web-based marketing support.

Financially, the initial years reflected the challenges of a startup in a competitive field; for the fiscal year ending September 2019, revenue was modest at approximately ¥200 million, with the company reporting a small net loss as it invested in infrastructure and talent.

As the company navigated the disruptions of the global COVID-19 pandemic in 2020, it demonstrated resilience by prioritizing geographic expansion and technological innovation.

In November 2020, offices were established in Osaka (Kita-ku) and Nagoya (Nakamura-ku), extending the firm’s reach into the Kinki and Tokai regions where SMEs were particularly vulnerable to succession issues. These expansions were not merely physical; they were supported by a burgeoning emphasis on artificial intelligence to optimize deal-matching processes.

Revenue for FY2020/9 stood at ¥376 million, a notable increase from the prior year, though operating profit was slim at ¥3 million amid pandemic-induced slowdowns in M&A activity. Net income turned positive at ¥4 million, signaling early operational efficiencies. The pandemic underscored the value of digital tools, prompting the firm to accelerate AI development.

A significant milestone arrived in January 2021 with a strategic alliance with PKSHA Technology Inc., a leader in AI and natural language processing. This partnership facilitated the creation of proprietary algorithms that analyzed vast datasets to match buyers and sellers with unprecedented speed and accuracy, reducing average deal timelines from the industry norm of 12 months to around 6.5 months.

In February 2021, the headquarters relocated to the prestigious Marunouchi district in Chiyoda-ku, Tokyo, enhancing the firm’s professional image and facilitating better access to corporate clients.

The fruits of these initiatives were evident in FY2021/9 financials, where revenue surged 253% year-over-year to ¥1,328 million, driven by a rebound in economic activity and heightened demand for succession solutions. Operating income reached ¥563 million, reflecting improved margins as the AI system began to scale.

The company’s trajectory accelerated with its initial public offering in June 2022 on the Tokyo Stock Exchange’s Growth Market, under ticker 9552. This listing not only provided capital for further growth but also validated the business model in the eyes of institutional investors, amid Japan’s record M&A volumes.

Post-IPO, revenue for FY2022/9 climbed to ¥3,911 million, a 195% increase, with net income at ¥1,326 million. Leadership under Sagami remained steadfast, with no major executive shakeups, allowing the firm to focus on execution. By 2023, the company had capitalized on Japan’s M&A boom, closing deals across diverse sectors and expanding its advisor base.

Revenue doubled to ¥8,642 million in FY2023/9, with operating margins exceeding 50%, bolstered by AI efficiencies and a commission-only fee structure that appealed to cost-conscious SMEs. Expansion continued apace in 2024 and 2025, with new offices in Fukuoka, Okinawa, Sapporo, and Takasaki to cover underserved regions, and an international foothold established in Singapore to tap into similar demographic challenges in Asia-Pacific markets like South Korea and Taiwan.

FY2024/9 saw revenue reach ¥16,549 million, up 91% year-over-year, with net income at ¥5,788 million.

The third quarter of FY2025/9 reported net sales of ¥11,597 million (minus 9.2% versus 2024) and operating profit of ¥3,243 million (minus 53.8%), though full-year forecasts give by management is a net revenue of ¥17,950 million and operating profit of ¥5,732 million.

Key events included diversification into post-deal consulting and asset management services for sellers. Economically, the firm benefited from Japan’s 2024 M&A record of $232 billion, fueled by corporate restructuring and foreign investments, but faced headwinds from yen depreciation and global uncertainties.

Return on equity remained impressive at 79.2% in recent quarters, underscoring a capital-light model. Over the years, employee numbers grew from under 50 in 2019 to over 450 in 2025, reflecting the scalability of operations.

Management

The management team at M&A Research Institute Holdings Inc. exemplifies the kind of proactive, visionary leadership that has propelled the company from a fledgling startup to one of Japan’s top publicly listed M&A firms for small and medium-sized enterprises in less than seven years. This rapid ascent, amid a demographic crisis that has intensified pressure on SMEs to find successors, underscores a team’s ability to execute a clear strategy with discipline, particularly in maintaining a customer-centric, results-driven approach through a commission-based model that eschews upfront fees.

By integrating artificial intelligence to streamline processes, the leadership has demonstrated forward-thinking innovation, a hallmark of effective management in highly competitive industries where traditional methods often dominate.

Over the past five years, the firm’s scaling and sustained profitability further indicate a capability to adapt to market demands while driving efficient results, fostering alignment across a growing organization.

At the helm is Shunsaku Sagami, the 34-year-old founder, President, CEO, and Representative Director, who has been instrumental since the company’s inception in 2018.

Born in 1991 and a graduate of Kobe University, Sagami’s entrepreneurial journey began early; after joining MicroAd Co., Ltd. in September 2013, where he developed algorithms for advertising systems, he founded Alpaca Co., Ltd. (later renamed Smart Media Co., Ltd.) in 2015, which he successfully sold.

This experience honed his skills in technology and business development, inspiring him to address Japan’s SME succession crisis. A personal motivation rooted in his grandfather’s real estate business shutting down due to a lack of successors.

Under Sagami’s guidance, the firm has pioneered AI-driven matching, reducing deal times significantly and positioning it among the top four listed SME M&A firms by market value.

His substantial ownership stake of 53.5% aligns his interests deeply with shareholders, while his net worth marks him as one of Japan’s youngest self-made billionaires. Sagami’s leadership style emphasizes disruption through technology, as evidenced by partnerships like the one with PKSHA, and a focus on societal impact, such as preserving jobs and businesses in an aging society.

Supporting Sagami is a cadre of experienced executives and general managers, many drawn from prestigious Japanese institutions, ensuring operational depth. Hikaru Ogino, a certified public accountant, serves as CFO and Director since December 2020, overseeing financial strategy amid hyper-growth.

However the firm just announced he will assume the role of Head of the Internal Audit Office and Hiroki Kagami will take the role of CFO as per October 1, 2025.

Akihiro Yabuki, Executive Vice President and Director since April 2020, manages operations, leveraging his background in business development to drive expansions.

At the divisional level, leaders like Toshiki Moriya (General Manager, Corporate Information), with experience from Nomura Securities, handle manufacturing and services; Takuma Kinami from a major securities firm covers IT and medical sectors; and Yu Nishimura from Sumitomo Mitsui Banking focuses on real estate and logistics.

Further, Niwata Soshi from a major real estate company oversees nursing care and food; Kengo Masuda from Keyence manages transportation; and Hiroya Horie from a securities background handles retail and human resources.

This team’s diverse expertise, shared through quarterly updates on advisor knowledge, fosters a collaborative environment. This founder-led team, with its blend of youth and experience, positions the firm for continued innovation.

Culture

The culture at M&A Research Institute Holdings Inc. revolves around core values of innovation, customer focus, and high performance, cultivated in a startup-like environment that has matured alongside the company’s growth. The emphasis on “speedy conclusion” and “full support” translates into initiatives like comprehensive in-house training programs for AI tools and M&A best practices, designed to empower employees and accelerate their contributions to deal-making.

While diversity data is not extensively disclosed, aligning with broader Japanese corporate trends, the firm’s leadership and advisor base reflect a mix of backgrounds from major institutions, suggesting an inclusive approach to talent acquisition that values expertise over uniformity.

External perspectives, such as those from industry reports and general reviews of M&A firms on platforms like Glassdoor and Indeed, indicate a demanding yet rewarding workplace, where long hours are balanced by performance-based bonuses and the satisfaction of addressing societal issues like business succession. Employee metrics, inferred from peers, show turnover rates around 12% for advisors, mitigated by knowledge-sharing sessions and a collaborative ethos that encourages sharing of experiences and know-how.

Compared to competitors like Nihon M&A Center, this firm’s integration of technology may foster a more dynamic, tech-oriented culture, promoting agility in a traditionally relationship-driven industry.

Business model

M&A Research Institute has constructed a multifaceted business model that leverages its core expertise in mergers and acquisitions intermediation while branching into complementary services to capture greater value in Japan’s evolving SME landscape.

At its foundation, the company operates as a performance-based M&A advisor, primarily targeting small and medium-sized enterprises (SMEs) grappling with succession challenges due to an aging owner demographic. This core brokerage activity generates the bulk of revenue through success fees tied directly to deal closures, a structure that aligns incentives with client outcomes and minimizes upfront risks for users.

Over time, the firm has diversified into consulting services, including specialized arms like Quants Consulting, and nascent ventures such as asset management consulting, alongside ancillary web marketing support inherited from early acquisitions.

This evolution reflects a strategic shift from a pure-play brokerage to a more integrated platform, aiming to provide end-to-end solutions from deal origination to post-transaction support. However, the model’s transactional nature introduces cyclicality, with revenue heavily dependent on economic conditions, deal volumes, and advisor productivity.

Recent financials for FY2025/9 Q3 illustrate this dynamism: consolidated net sales dipped 9.2% year-over-year to ¥11,597 million, while operating profit plummeted 53.8% to ¥3,243 million, largely attributable to fewer closed deals in the brokerage segment and upfront investments in growth initiatives across consulting units.

Also the future idea of the company is to re-invest the generated cash by the core business into new areas.

Despite the near-term pressures, the model’s scalability, bolstered by AI-driven efficiencies and an expanding advisor base, positions it for recovery, with leading indicators like record-high active advisory contracts signaling potential rebound in 2026 and beyond.

To fully appreciate the business model’s mechanics, it is essential to dissect its primary components: the M&A brokerage business, the consulting operations (with a focus on Quants Consulting), and other emerging segments. Each contributes uniquely to revenue streams, with distinct risk profiles and growth trajectories.

Revenue recognition principles are particularly critical in the brokerage arm, where fees are deferred until deal finalization, creating lumpy earnings patterns that can amplify quarterly volatility. Overall, while FY2025 has marked a normalization after years of hypergrowth, with margins compressing from over 50% to 28% (as per 3Q 2025), investors should view this as a transitional phase driven by strategic investments rather than structural weaknesses.

Looking ahead, as advisor productivity stabilizes and new businesses mature, the company could resume double-digit growth, potentially restoring profitability to 40-50% margins by 2027, assuming sustained demographic tailwinds in Japan’s M&A market.

M&A Brokerage Business: The Revenue Engine with Transactional Dynamics

The cornerstone of M&A Research Institute’s operations is its M&A brokerage business, which facilitates the transfer of SMEs from retiring owners to suitable buyers, addressing Japan’s acute business succession crisis where an estimated 50,000-70,000 viable firms risk closure annually due to a lack of heirs.

This segment solves acute pain points for clients by offering a no-retainer-fee model, where the firm absorbs initial costs and earns revenue solely upon successful deal closure. A stark contrast to traditional advisors who charge upfront retainers, monthly fees, or milestone payments.

This performance-based approach not only lowers barriers for cost-sensitive SMEs but also incentivizes efficiency, with the company’s proprietary AI algorithms, developed via partnerships like PKSHA Technology, accelerating matching processes to an average conclusion time of 7.2 months, down from industry norms exceeding 12 months.

Revenue recognition in this business follows standard M&A advisory practices under Japanese GAAP and IFRS principles: success fees, typically 5% of the transaction value for deals under ¥500 million, are recognized only at the point of deal finalization, when risks and rewards transfer to the buyer and seller. This deferred recognition creates inherent lumpiness, as quarterly results fluctuate based on closure timing rather than origination volume.

For instance, fees are calculated on the transfer price, often ranging from ¥100 million to ¥10 billion per deal, encompassing services from valuation, due diligence, negotiation, to post-deal integration support.

Ancillary web marketing from the Contact K.K. acquisition aids lead generation via M&A platforms, contributing modestly to early-stage revenue but primarily feeding the brokerage pipeline.

Historically, this segment has driven explosive growth; full-year 2024 saw brokerage net sales exceed ¥15 billion, with operating margins above 50%, fueled by over 100% year-over-year increases as advisor numbers scaled and AI optimized matches.

However, FY2025/9 Q3 revealed challenges, with brokerage net sales falling 15.4% year-over-year to ¥10,724 million and operating profit dropping 45.5% to ¥3,945 million. The primary culprit was a decline in closed deals, attributed to prolonged productivity restoration following rapid hiring and internal restructuring, including the introduction of a Department Head System to improve sourcing, qualification, and matching KPIs.

When you look at the department system, you can see M&A Research Institute add a layer of Department Heads on top of the managers. Please note that these managers were player-managers. Since the number of employees is growing, these managers couldn’t act as players as well, so hence the initiative to add Department Heads. One can argue whether those managers shouldn’t just become full time players.

These investments in management strengthening, human resource development, and compliance further eroded margins, as the firm expanded its advisor base to 372 (en route to 400 by fiscal year-end), diluting near-term sales per advisor to ¥67 million, still robust but down from peaks of ¥74 million in FY2023/9.

This decline reflects a normalization after hypergrowth phases, where prior years benefited from pent-up demand post-COVID and record M&A activity in Japan ($232 billion in 2024). The 28% consolidated operating margin for Q3 underscores the impact of these upfront costs, but it is not indicative of long-term erosion; rather, it highlights the capital-light model’s resilience, with low fixed costs allowing quick pivots once productivity rebounds.

Looking forward, the brokerage outlook remains optimistic, underpinned by structural demand from demographics and operational levers. The number of active advisory contracts, a key leading indicator, hit record highs, signaling a pipeline for future closures.

Expanding the partner network and Education Support Department should enhance deal execution, potentially lifting closure rates and reducing average times further (the shortest recorded at 1.5 months demonstrates AI’s potential).

Looking forward, the brokerage outlook remains optimistic, underpinned by structural demand from demographics and operational levers. The number of active advisory contracts, a key leading indicator, hit record highs, signaling a pipeline for future closures. Expanding the partner network and Education Support Department should enhance deal execution, potentially lifting closure rates and reducing average times further.

With average advisors projected at around 350-400 for FY2026/9 (factoring in continued hiring beyond the FY2025/9 end-target of 400), sales per advisor could recover conservatively to ¥55-60 million from recent dips, driving net sales growth of 20-30% as the firm captures more of the fragmented SME market (estimated 5% share currently). Operating profit should follow suit, with margins expanding to 45-50% as investments yield returns. Productivity restoration is already underway, per management commentary. Risks include economic slowdowns delaying deals or regulatory shifts in M&A taxation, but mitigation through diversification and AI’s cost advantages positions this segment as the stable core, contributing 90%+ of revenue long-term.

Consulting Business: Quants Consulting’s Loss-Making Phase and Path to Profitability

Complementing the brokerage, the consulting business, led by Quants Consulting, represents a strategic diversification into value-added services, targeting M&A-related advisory for buyers, sellers, and post-deal integration.

Quants provides specialized consulting, encompassing due diligence, strategy formulation, and operational enhancements for acquired entities, capitalizing on the firm’s brokerage expertise to upsell within the ecosystem.

This segment solves problems like integration risks and value realization post-M&A, where traditional brokers often stop at closure. Revenue here is more recurring than brokerage, potentially from fixed-fee projects or retainers, recognized over time as services are rendered, offering a buffer against transactional volatility.

In FY2025/9 Q3, Quants Consulting posted net sales of ¥870 million, a remarkable 782.8% year-over-year surge, reflecting aggressive expansion and deal acquisition momentum. However, it operated at a temporary operating loss of ¥539 million, primarily due to proactive hiring to build capacity. The consultant headcount is on track to reach 140 by fiscal year-end, up from lower bases in prior periods.

This loss-making status is intentional, as the firm invests in talent and infrastructure to scale, mirroring classic growth-stage dynamics in professional services where upfront costs precede revenue ramp-up. The high sales growth amid losses indicates healthy demand, with recruitment progressing as planned, but profitability has been deferred by scaling expenses like training and client acquisition.

The growth path for Quants is clear and methodical: management emphasizes steady hiring aligned with deal pipelines, leveraging the parent company’s network for cross-selling opportunities. As consultants ramp up productivity, potentially mirroring brokerage advisors’ trajectories, the segment should transition from loss to breakeven within 12-18 months. In my view, breakeven could materialize in FY2026, assuming consultant utilization rates improve to 70-80% and average project fees stabilize at levels supporting 30-40% margins post-scale.

This timeline factors in current progress: Q3’s sales explosion suggests demand outpacing supply, and with 140 consultants, revenue could double to ~¥1.5 billion annually, covering fixed costs as variable margins kick in. Beyond breakeven, Quants could contribute 10-15% of group revenue by 2027, with operating profits turning positive at ¥200-500 million, driven by synergies like shared AI tools for consulting analytics.

Risks include talent retention in a competitive market or slower-than-expected deal flow, but mitigation via internal training and brokerage referrals bodes well. Compared to peers, this investment phase echoes successful expansions in firms like Deloitte’s M&A consulting arms, where initial losses yield high-ROIC returns.

Other Businesses: Emerging Ventures and Ancillary Support

The “others” category encompasses nascent initiatives like asset management consulting and residual web marketing operations, which are in early stages but hold promise for future diversification. Asset management consulting, recently licensed and operational, prepares for service launch by offering post-M&A wealth management for sellers, such as portfolio optimization or investment advisory, addressing the financial aftermath of business transfers.

Revenue recognition here would likely be fee-based, recognized as services are provided, with potential for recurring elements via asset under management (AUM) fees. Currently pre-revenue, this unit represents a high-upside bet on capturing “tail” value from brokerage deals, where sellers seek to reinvest proceeds securely.

Web marketing, stemming from the 2019 Contact K.K. acquisition, supports lead generation through M&A platforms, contributing ~5-10% of group revenue via advertising or subscription models, recognized upon delivery. These segments are minor today but could grow via synergies; for instance, asset management might integrate with Quants for holistic client solutions. In FY2025, their impact on profitability is negligible, but as launches occur, they could add ¥500 million+ in sales by FY2027 with 20-30% margins, inferred from similar advisory extensions.

Consolidated View: Navigating FY2025 Declines and Future Expectations

Consolidating these elements, the business model in FY2025 reflects a pivot toward sustainable scaling after explosive prior growth, with the Q3 profitability plunge (from 55% to 28% margins) stemming from brokerage deal delays and cross-segment investments rather than demand erosion.

Net sales contraction signals a pause, but balance sheet strength (low debt, high cash from prior profits) supports this phase. For next years, expect FY2026 recovery: brokerage rebound via advisor scale and contracts, Quants breakeven, and others contributing modestly, potentially yielding 20%+ group revenue growth and margin expansion to 40%. By FY2027, full diversification could drive 15-20% CAGR. This trajectory assumes Japan’s M&A market sustains 10-15% growth; downside risks include recessions, but the model’s adaptability, rooted in demographics, favors upside for patient investors.

Strategy and Moat

The strategic framework of M&A Research Institute Holdings Inc. is built around leveraging technology and customer-centric practices to dominate Japan’s SME M&A intermediation market, with a clear emphasis on addressing the succession crisis through efficient, transparent processes.

The overarching goal is to maximize deal closures by increasing the number of M&A advisors and boosting revenue per advisor through training and AI enhancements. This labor-intensive yet scalable approach prioritizes rapid expansion into underserved regions, as seen in the establishment of multiple domestic offices and an international presence in Singapore, while diversifying services to include post-deal consulting and asset management to capture more value from each client relationship.

Central to this strategy is the integration of AI as a core differentiator, enabling the firm to conduct intensive buyer searches and achieve speedy conclusions that traditional competitors struggle to match. Partnerships, such as the one with PKSHA Technology for natural language processing, underpin this, allowing algorithms to process inquiries exceeding 5,000 annually and convert them into deals with high satisfaction rates.

Forward-looking elements include international growth to replicate the model in aging Asian economies and investments in proprietary software to digitize workflows, reducing dependency on manual efforts. The commission-only fee structure serves as a strategic tool to gain market share, attracting clients wary of upfront costs and fostering long-term loyalty through honest valuations and full support.

Evaluating competitive advantages through the lens of economic moats reveals strengths in several areas, ranked on a scale of 1 (weak) to 5 (strong):

• Switching Costs (3): Clients benefit from seamless processes, but alternatives exist; loyalty stems from success rates rather than lock-in.

• Cost Advantage (4): Eliminating retainer fees lowers client barriers, while AI reduces internal costs, enabling competitive pricing.

• Regulatory Barriers (2): Minimal in Japan’s M&A sector, though compliance expertise provides a slight edge.

• Brand Power (3): Growing recognition as a top performer, but still building against established names.

• Intellectual Property (4): Proprietary AI algorithms offer a technological barrier, protected through partnerships.

• Network Effects (5): As data accumulates from deals, matching accuracy improves, creating a virtuous cycle that strengthens over time.

A Porter’s Five Forces analysis further contextualizes the strategy:

• Threat of New Entrants (Medium): AI lowers some barriers, but building data sets and advisor networks requires time; the firm’s first-mover AI advantage deters casual entrants.

• Threat of Substitutes (Low): Alternatives like in-house successions or traditional brokers are slower and costlier, making the model compelling for SMEs.

• Buyer Power (Medium): Sellers have options, but the no-fee structure reduces leverage; diversified industries prevent over-reliance.

• Supplier Power (Low): Primarily internal advisors and tech partners like PKSHA, with bargaining mitigated by in-house training.

• Competitive Rivalry (High): Intense against firms like Nihon M&A Center, but differentiation via speed (6.2-month average) and AI positions the company favorably.

On the supply side, key dependencies include tech providers for AI maintenance and a talent pool for advisors; scenarios like partner disruptions could slow growth, but mitigation through internal development and diversified recruitment, drawing from banks and securities, ensures resilience.

Industry Context

Japan’s M&A advisory industry is fragmented yet consolidating, characterized by a mix of large financial institutions and specialized intermediaries serving a market that hit $232 billion in deals during 2024’s first half, driven by corporate reorganizations, foreign investments, and the SME succession wave.

The structure leans toward an oligopoly among giants like Nomura and KPMG for high-value transactions, but remains open in the SME segment where barriers are lower, allowing nimble players to capture share through innovation. Main competitors include Nihon M&A Center (market leader in volume, with strengths in traditional networking but slower growth at 8-10% YoY), M&A Capital Partners (focused on mid-market, with similar SME emphasis but higher fees), and global firms like Deloitte. M&A Research Institute’s positioning as an AI-driven, fee-transparent option gives it an edge in speed and cost, claiming a ~5% share in SME deals.

Risks

As a high-growth player in Japan’s M&A intermediation space, M&A Research Institute benefits from structural tailwinds like the SME succession crisis, but its business model, reliant on transactional fees, rapid scaling, and technology integration, exposes it to a spectrum of risks that could materially impact financial performance and operations. Recent results, such as the FY2025/9 Q3 decline in net sales by 9.2% and operating profit by 53.8%, underscore vulnerabilities tied to execution challenges amid expansion.

Management disclosures highlight potential threats to the company’s position, operating results, and cash flows, categorized broadly into operational and business risks, external environment risks, and financial risks.

While the firm mitigates many through AI efficiencies and a capital-light structure, I have to weigh these against the backdrop of moderated growth forecasts and investments in nascent segments like consulting.

Operational and Business Risks

Operational risks at M&A Research Institute primarily stem from the people-intensive nature of its brokerage model, where advisor productivity directly drives revenue. The company’s strategy hinges on scaling the M&A advisor base but rapid hiring has led to temporary dips in sales per advisor.

New hires require extensive training via the Education Support Department and ramp-up time for deal sourcing and execution, contributing to fewer closures and prolonged average conclusion times of 7.2 months (up slightly from 7.0 months in FY2024/9).

This was evident in Q3, where initiatives like the Department Head System aimed to bolster compliance, human resources, and matching KPIs, but upfront costs eroded margins to 28% from 55% year-over-year. If productivity restoration falters, due to high turnover in a competitive talent market for ex-bankers and securities professionals, the firm risks sustained underperformance, as advisors handle multiple inquiries (over 5,000 annually) but convert only a fraction into deals.

Business risks amplify these operational hurdles through intense competition and model dependencies. Japan’s M&A advisory market, while fragmented in the SME segment, features entrenched players like Nihon M&A Center with superior networks and brand power, potentially eroding the firm’s ~5% share if competitors adopt similar AI tools or undercut on fees.

The retainer-free, success-fee-only structure (typically 5% of deal value) builds trust but creates vulnerability to deal failures, where no revenue is recognized until closure under deferred accounting rules. Diversification into consulting introduces execution risks, as scaling to 140 consultants demands seamless integration with brokerage pipelines; failure here could strain resources without near-term returns.

Moreover, over-reliance on proprietary AI for matching poses technological risks; algorithm inaccuracies or data quality issues could lengthen deal times, damaging reputation in a trust-based industry. Management acknowledges these as key threats, with potential to affect operating results if market penetration stalls amid saturation in core SME transfers.

Mitigation includes internal training and partner expansions, but persistent challenges could cap growth below the 20-30% targeted for FY2026.

Risks to the External Environment

External risks loom large for M&A Research Institute, given its sensitivity to macroeconomic and regulatory shifts in Japan and emerging international markets. Economic downturns represent a primary threat, as M&A activity, tied to corporate confidence and financing availability, plummets during recessions; Japan’s 2024 record $232 billion in deals benefited the firm, but softening global growth or domestic stagnation could delay SME transfers, exacerbating Q3-like revenue contractions.

The succession crisis, while a tailwind (50,000-70,000 annual closures at risk), could evolve if government incentives for internal successions or demographic policies alter demand dynamics, reducing the urgency for external brokerage. Geopolitical tensions or yen volatility further compound this, especially with the Singapore office targeting Asia-Pacific expansion; currency fluctuations could inflate costs for cross-border deals or deter foreign buyers.

Regulatory and legal risks add layers of uncertainty. Changes in Japan’s M&A laws, such as stricter antitrust scrutiny or tax reforms on transfers, could increase compliance burdens or alter fee structures, impacting the firm’s low-barrier appeal to SMEs.

Internationally, varying regulations in markets like South Korea or Taiwan, where similar aging issues exist, pose entry barriers, including licensing requirements or cultural mismatches in deal-making. Broader environmental factors, such as pandemics or supply chain disruptions, historically slowed activity, highlighting the model’s cyclicality despite demographic buffers. Competitive landscape risks intensify externally too; if larger firms consolidate or tech disruptors emerge, the company’s AI moat could weaken.

Management’s medium-to-long-term strategy addresses this through office expansions and new structures, but external shocks remain a high-severity concern (rated 3/3), potentially derailing forecasts if not hedged via geographic diversification.

Financial Risks

Financial risks for M&A Research Institute arise from the lumpy, deferred revenue recognition inherent to its success-fee model, where earnings volatility mirrors deal closure timing rather than steady inflows. Q3 FY2025/9 illustrated this, with consolidated operating profit halving due to fewer deals despite record advisory contracts, underscoring cash flow unpredictability.

While the firm maintains a strong balance sheet, low debt-to-equity and ample cash from prior hypergrowth, the investments in consulting and hiring could pressure liquidity if growth moderates, as seen in Quants’ losses amid scaling.

High operating margins (historically 50%+) provide a buffer, but compression to 28% signals risks from cost overruns in human capital or tech partnerships.

Forex exposure grows with international ventures, where a strengthening yen might reduce competitiveness for inbound deals. Credit risks, though minimal in a commission-only setup, could emerge if clients default post-closure, though due diligence mitigates this. Overall, financial risks (rated 2/3) are manageable given asset-light operations and high ROE, but it is good to watch debt levels and cash burn in loss-making segments.

In summary, while operational scaling and external cycles pose the gravest threats, the firm’s proactive measures, AI leverage, talent initiatives, and geographic bets, offer resilience. Severity varies, but integrated risk management will be key to sustaining 20-30% growth amid FY2025 normalization.

Valuation

Valuing a stock is a deeply personal part of my investing journey, where I’ve learned firsthand that overpaying can erode even the best returns.

As a start let’s have a look at M&A Research Institute’s 2025 revenue growth outlook, which is around last years level:

• Management is expecting 17.950M Yen. Given prior quarters I think this is challenging, but for 2025 I took over this number.

• Brokerage M&A should return to growth, given the expectations the external market will grow as well. I have assumed 16% for 2026, 12.5% for 2027 and 10% for 2018. Operating profit same time should trend back towards 50%.

• Consultancy business will continue to grow and for 2026 I have assumed they will break even, followed by an operational profit the years after.

• The Others segment is very difficult to forecast. I have included a bit revenue and loss from 2026 onwards. Management will continue to redeploy cash and grow the business, be it new business or new regions.

To gauge the attractiveness of M&A Research Institute’s current market price, particularly in light of its recent operational challenges and growth trajectory, an examination through discounted cash flow models provides valuable insights into both implied expectations and potential intrinsic value. This analysis builds on the financial trends discussed earlier, such as the FY2025/9 Q3 dip in net sales to ¥11,597 million and operating profit to ¥3,243 million, alongside the company’s full-year forecast of ¥17.95 billion in revenue and ¥5.73 billion in operating profit.

With the stock trading at approximately ¥1,224 (Ocotber 7, 2025) yielding a market capitalization of around ¥66.2 billion these models help assess whether the valuation reflects undue pessimism or realistic caution amid scaling risks.

Assumptions include a 10% weighted average cost of capital, reflective of Japan’s stable but low-growth environment, and a 2.5% terminal growth rate aligned with long-term GDP expectations. Free cash flow (FCF) estimates draw from trailing twelve-month figures, where FCF approximates operating profit adjusted for minimal capital expenditures in this asset-light business.

Reverse DCF - What Growth is Priced In?

Starting with known data points and working backwards to assess market expectations and judge whether these expectations are realistic.

A reverse discounted cash flow (DCF) approach starts with the current enterprise value and works backward to derive the growth rates embedded in the market’s pricing, offering a lens to evaluate if those expectations are overly conservative or optimistic. By solving for the implied FCF growth required to justify the current market cap, the model assumes a year 1 FCF based on the forecast of management for 2025.

Starting from an estimated FCF of around ¥4.4 billion the reverse DCF indicates that the market is pricing in just 3% annual FCF growth over the next decade.

This implied growth appears notably low when contextualized against the company’s historical performance and structural drivers. For instance, even amid the FY2025/9 Q3 slowdown, where operating margins compressed to 28% due to investments in advisor scaling and consulting diversification, the firm maintains a robust pipeline of active advisory contracts at record highs, signaling potential for a rebound.

2025 represents a transitional low point, with temporary productivity dips from rapid hiring and upfront costs in Quants Consulting, which remains loss-making but on track for breakeven by 2026. The market’s conservatism likely stems from skepticism about a swift return to peak metrics, especially given external risks like economic softening or competitive pressures in Japan’s fragmented SME M&A market.

However, if management executes on productivity restoration, through enhanced training, AI optimizations, and partner networks, the implied 3% growth underestimates the demographic tailwinds of Japan’s succession crisis, where over 50,000 SMEs face annual closure risks. This disconnect suggests the stock may incorporate a significant margin of safety for downside scenarios, making it appealing for investors betting on a normalization to 20-30% growth in 2026 as outlined in the growth drivers section.

If you are interested in the forecast and valuation model in Google Sheets you can join my Discord app for free and get it. There will be more detailed information available in the app, also around other stocks.

DCF Model: What’s the Intrinsic Value?

Shifting to a forward DCF valuation, the model projects explicit cash flows over a 10-year period based on conservative assumptions aligned with the company’s medium-term strategy, before transitioning to the 2.5% perpetuity growth. For the initial years, revenue growth tapers from the 2025 forecast of ¥17.95 billion to an increase in revenue for the brokerage sector below 20% for 2026-2028. Beyond the explicit four-year period, FCF growth moderates to a base case of 10% annually, accounting for market maturation and international expansion risks, but with potential upside.

Discounting these flows at 10% produces an intrinsic enterprise value of approximately ¥120 billion, implying the stock is undervalued 81%.

This translates to a potential equity value of ¥2,219 per share, offering annualized returns of 16% over the next decade if assumptions hold. The base case strikes a balance between optimism, rooted in AI-driven efficiencies and demographic demand, and prudence, acknowledging the firm’s youth (founded 2018) and need to prove scalable management amid recent margin compression.

However, given the operational risks highlighted earlier, such as advisor turnover and execution challenges in consulting, a margin of safety is prudent to buffer against downside. Applying a 40% discount to the intrinsic value accounts for uncertainties like economic cycles or regulatory shifts, resulting in a target buy range below ¥1,330 per share. At the current price of ¥1,224, this positions the stock as attractive, even compared to my entry point of ¥936 in July 2025 (too bad it was only 1% of my portfolio!) , provided management delivers on growth restoration and margin recovery. I will monitor upcoming results for confirmation of pipeline conversion, as any further delays could warrant revisiting the assumptions. Overall, the valuation underscores a compelling risk-reward profile in a market seemingly underpricing the company’s long-term potential in Japan’s evolving M&A landscape.

Forward P/E

M&A Research Institute’s forward P/E tells a similar story. Its median over recent years sits at 28.2, however current forward P/E is a lot lower at 16.6 showing the lower revenue growth in 2025 and the lower operating margins.

Free Cash Flow Yield

The FCF yield also shows currently a higher yield versus the average in the past and compared to Japan 10 year government bond of ~1.7% the yield M&A gives is very interesting.

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Final Conclusion

• Core Strength: AI-driven efficiency enabling faster deals and high margins.

• Key Dependency: Japan’s SME succession crisis; demographic trends essential.

• Top Growth Driver: International expansion and consulting diversification.

• Main Risk: Competitive pressure from larger advisors.

• Biggest Unknown: Sustainability of 50%+ margins amid scaling.

I will consider averaging up my position in M&A Research Institute, as it perfectly fits into my portfolio with capital light businesses run by the owner-operator. The margin of safety is high and some other portfolio positions are more expensive. The question around position sizing remains one of the most difficult ones. Am I going to top off a winner, or sell a loser and redistribute it over other interesting companies? I will let you know when I have made up my mind!

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Disclaimer

The information in this article is provided for informational and educational purposes only.

The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.

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Introduction

My Quick Scan recently evaluated NU Holdings, a leading digital banking platform founded in Brazil in 2013 by David Vélez (Colombia), Cristina Junqueira (Brazil), and Adam Edward Wible (USA). The quick scan assigned an Investment Readiness Score of 90.3, signaling a company worthy of a detailed deep dive.

The company began by offering a no-fee credit card managed entirely via a mobile app, which was a disruptive response to Brazil’s fee-heavy, bureaucratic banking system. Over time, Nubank expanded into a comprehensive suite of financial services, including savings accounts, personal loans, insurance brokerage, investments, and even non-financial offerings like a travel booking platform (NuTravel) and a mobile phone service (NuCel).

The company went public on the NYSE in December 2021 at a valuation of USD 45 billion (IPO price USD 9 per share), making it one of the most valuable financial institutions in Latin America. Notably, Nubank raised this capital at the peak of a tech boom, fortifying its balance sheet ahead of a more challenging macroeconomic turn in 2022.

This deep dive article will cover Nu Holdings management, their culture, it’s product and services, business model, strategy and moats, competition, growth expectations and valuation and will include a buy-below price and the final score. Let us know whether you liked this extended deep dive!

Management

David Vélez – Co-Founder, CEO & Chairman (Age:41)

David Vélez Osorno is Nubank’s chief architect and leader. A Colombian by birth, Vélez had first-hand frustration with Latin American banking when he tried to open a bank account in Brazil, an experience of bureaucratic hurdles and high fees that inspired Nubank’s founding. Before starting Nubank in 2013, Vélez was a successful venture capitalist: he was a partner at Sequoia Capital (2011 – 2013) in charge of LatAm investments. He also worked in investment banking and growth equity at Goldman Sachs, Morgan Stanley, and General Atlantic. He holds a BS in Management Science & Engineering and an MBA from Stanford University, giving him both analytical and business skills.

Source: 2Q25 Earnings Release

As Nubank’s CEO, Vélez is widely regarded as a visionary, customer-obsessed leader who grew the company from a small startup to a NYSE-listed banking giant in under a decade. He is known for championing Nubank’s fanatical focus on customer experience and its nonconformist, tech-driven culture. Vélez also serves as Chairman of the Board, cementing his influence over Nubank’s strategic direction.

He has skin in the game: Vélez is Nubank’s largest shareholder. As of the IPO, he owned 938 million shares, mostly Class B with 20× voting power, giving him 75% of voting rights and 19% of economic ownership.

Vélez’s continued leadership is viewed as a key asset. If he were to depart, it could be destabilizing. However, he’s relatively young and deeply committed to Nubank’s mission, so this risk seems low. Overall, Vélez’s mix of venture capital mindset, regional knowledge, and tech vision has been instrumental in Nubank’s rise. He has stated goals as bold as making Nubank ‘the most valuable bank in the world’ and maintaining the company’s culture at scale. Thus far, he has shown prudent decision-making and an ability to attract top talent to the team.

Cristina Junqueira – Co-Founder & Chief Growth Officer (Age 41)

Cristina Junqueira is Nubank’s prominent co-founder alongside Vélez. A Brazilian native, she worked at Itaú Unibanco in credit cards and consumer lending prior to Nubank. She has an engineering background and an MBA from Kellogg. At Nubank’s inception, Junqueira brought deep knowledge of Brazil’s banking products and customer pain points, having seen it from the inside at Itaú. She was instrumental in designing Nubank’s initial credit card product and customer support ethos. She famously insisted on no fine print or hidden fees. For many years, Junqueira was Nubank’s public face in Brazil and led its marketing and growth efforts.

In 2022, her role formalized as Chief Growth Officer (CGO) for the group. In this capacity, she is responsible for growth strategy and operations in new markets (Mexico, Colombia), as well as global marketing and communications. Essentially, she spearheads Nubank’s international expansion playbook and ensures the brand replicates its success outside Brazil.

Junqueira is also a champion of Nubank’s culture and diversity initiatives. She is one of the few female co-founders in fintech and has been recognized in Fortune’s Most Powerful Women International list. She holds a significant equity stake in Nubank as well, about USD 1.8 billion worth as of mid-2025, which amounts to roughly 3% of the company. This makes her one of Brazil’s wealthiest women on paper and aligns her interests with long-term success. Cristina is known to be very customer-centric and detail-oriented, often reviewing customer feedback and instilling Nubank’s fanatical customer love culture in new hires.

Having a co-founder lead growth signals how critical expansion is to Nubank, ensuring new markets getting the same DNA. Her experience at an incumbent bank also provides an insider perspective on how to outmaneuver them. As Brazil CEO until recently, she oversaw Nubank’s core market scaling. Livia Chanes took over the Brazil CEO role in 2024 so that Cristina can focus fully on growth dimensions. These include cross selling more products per customer and pushing into new geographies.

Guilherme Marques do Lago – Chief Financial Officer (Age 45)

Guilherme do Lago has been Nubank’s CFO since Feb 2021. He joined Nubank in 2019 as VP of Finance and was promoted to CFO two years later. Do Lago brings deep banking and finance experience: he spent 13 years at Credit Suisse (2006 - 2019) in various roles, including Managing Director in the investment banking division. He also had a stint at McKinsey & Co. as a consultant (2005 - 2006). He holds an engineering degree from USP and an MBA from Harvard. As CFO, do Lago oversees Nubank’s financial strategy, accounting, and investor relations.

Colleagues describe him as financially disciplined and detail-oriented, which is evidenced by Nubank’s solid financial disclosures and moves like early securitizations of loan portfolios to manage risk. In 2022, CFO do Lago and Vélez took decisive steps to improve profitability: for example, terminating a 2021 employee share award program (saving USD 70 million per year), and slowing hiring growth. This signals a focus on efficiency and shareholder value from the finance side.

Do Lago’s background at a major global bank likely helps Nubank in dealing with regulators, capital markets, he would have been key in the IPO process, and implementing robust financial controls.

In sum, as CFO he brings a conservative counterweight to Nubank’s rapid expansion, ensuring capital adequacy by holding double the required capital and prudent provisioning. He, along with the CEO, signed off on no near-term dividends and reinvestment of profits, indicating alignment with long-term growth.

Youssef Lahrech – President & Chief Operating Officer (Age 50)

Youssef Lahrech joined Nubank in 2020 as COO and was elevated to President in Aug 2022. He comes with nearly two decades at Capital One in North America. At Capital One (a pioneer in data-driven consumer credit), Lahrech held roles spanning product, analytics, risk, and technology, helping build card and lending businesses in the US and Canada. He has advanced degrees in Mathematics / Engineering from top French schools and MIT, giving him a strong quantitative and technical foundation.

At Nubank, Lahrech reports directly to the CEO and is responsible for day-to-day operations: he oversees product performance, platform reliability, marketing execution, and country operations, as well as corporate support functions. Essentially, while Vélez sets vision, Lahrech drives execution. His experience at Capital One likely informs Nubank’s credit underwriting and use of machine learning. Capital One was famous for its analytical rigor, which aligns with Nubank’s data-driven approach to extending credit to new segments.

Since taking on the President role, Lahrech also coordinates Nubank’s multi-country expansion and cross-functional integration. Insiders credit him with improving Nubank’s operational efficiency. He streamlined processes as Nubank scaled from startup to an 8,000+ employee company. Lahrech’s presence is also a signal to investors that Nubank has seasoned management beyond the founders, capable of running a large, regulated institution. He complements the team by having big-bank operational experience but also the adaptive mindset from Capital One’s innovative culture.

Henrique Camossa Fragelli – Chief Risk Officer (CRO)

A seasoned risk manager, CRO since 2018. He has global risk experience at HSBC London. Fragelli is responsible for all risk disciplines such as credit, market, liquidity, operational and AML. His leadership has been crucial in keeping Nubank’s credit losses relatively low and ensuring regulatory compliance as the company grew. He brings a conservative risk culture to balance Nubank’s rapid growth.

Jagpreet Duggal – Chief Product Officer (CPO)

Joined 2020, previously at Facebook and Google. He leads product strategy and development. Under his watch Nubank launched dozens of new features. His Silicon Valley experience reinforces Nubank’s tech/product excellence.

Thuan Pham – Chief Technology Officer (CTO)

Ex-CTO of Uber, joined Nubank in 2022. With Pham’s addition, Nubank gained one of the world’s top engineering leaders, ensuring its platform scales globally.

Livia Chanes – Brazil CEO (since Jan 2024)

Livia was promoted to handle day-to-day in Brazil. She’s ex-Itaú and ex-McKinsey and highly experienced in digital products. Her appointment allows Junqueira to focus on group growth, and brings specialized leadership to Nubank’s largest market.

Are incentives aligned?

Nubank’s approach to capital allocation has been characterized by aggressive reinvestment for growth, careful attention to maintaining a strong capital base, and gradually increasing focus on profitability metrics like Return On Equity (ROE).

Nubank has not paid any dividends and does not plan to in the near term. All earnings are plowed back into expanding the business, be it launching new products, marketing to acquire customers, or geographic expansion. Similarly, Nubank has not engaged in share buybacks; any excess capital is seen as fuel for growth rather than to be returned. Management explicitly states that given the high growth opportunities and high returns on invested capital internally, retaining earnings is the best use. This aligns with shareholder interests as I expect Nubank can continue to earn high ROE levels on reinvested funds.

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Decent ROE

Early on, as a fintech, Nubank prioritized growth over immediate profitability along with venture backing to subsidize acquisition. However, as a public company, it has started demonstrating a strong focus on improving ROE and efficiency. In 2024 and 2025, Nubank delivered a 28% - 30% ROE, which is far above peers. Nubank’s capital adequacy is strong by roughly 2× regulatory minimum, but not grossly overcapitalized to depress ROE.

Yes, there is Stock-Based Compensation, but reasonable for a fintech

Like many tech firms, Nubank has used SBC to attract talent. This leads to dilution, which shareholders watch carefully. Nubank had relatively high SBC as a percentage of revenue and currently it hovers around 4.8%. Management has indicated SBC as a percent of revenue will come down as the company scales.

In 2022, Nubank took a notable step by canceling a large contingent share award program from 2021. CEO Vélez himself agreed to terminate that program early, forfeiting some of his own potential awards, to eliminate USD 70 million in annual expense and corresponding dilution. This was a shareholder-friendly move showing management’s willingness to contain dilution and improve per-share metrics.

Due to their SBC program, 76% of employees held shares or awards as of December 2021 (IPO), which is positive for shareholder alignment.

Nubank’s share count did increase post-IPO due to employee options / RSUs vesting, but at a measured pace. As of end-2024, Class A + Class B shares outstanding were ca. 4.9 billion, up only slightly from 4.7 billion at end-2022.

Use of IPO proceeds

Nubank raised $2.6 billion in its IPO in late 2021. Management essentially pre-funded a lot of growth with that money. They haven’t squandered it; rather, it allowed them to comply with higher capital needs for a growing loan book and to expand safely through the 2022 high-rate period without needing to raise costly debt or dilutive equity at lower valuations. This shows good timing and foresight in capital raising. They also secured additional credit lines of USD 650 million in 2022 as backup liquidity. So capital allocation has been prudent in terms of ensuring ample liquidity but not lazily sitting on cash, Nubank’s cash and investments are largely utilized to fund credit growth.

No value-destroying acquisitions - so far

Nubank has made some acquisitions (Easynvest in 2020 for investments, an engineering firm, etc.), but these have been strategic and relatively small. Easynvest was a partly stock deal of USD 70 million. Management hasn’t attempted any oversized, unrelated M&A that would risk capital. All moves like acquiring a minority stake in an Indian payments firm or small tech tuck-ins have been to augment capabilities. Nubank’s management seems inclined to grow mostly organically and only buy if it accelerates their roadmap. Easynvest gave them a brokerage license and 1.5 million clients instantly.

Is Management Transparent?

Nubank’s shareholder communications have been regarded as quite thorough for a young company. The 2022 report even had a ‘Dear shareholder’ letter by Vélez with candid reflections on the year. The annual letters provide detailed metrics like ARPAC, cost-to-serve, activity rate, primary bank NPS, etc., which many banks do not disclose. This level of transparency builds trust that management is not hiding issues.

Solid external reputation

Nubank has earned significant third-party recognition for its transparency and corporate reputation. It’s been named the #1 strongest brand in Brazil in 2023 and won dozens of awards including ones for customer service and innovation. Such accolades imply that not only customers but also industry observers see Nubank as a trustworthy, well-run company.

Culture

Nubank’s culture is a mission-driven blend of customer obsession, innovation, diversity, ownership, and efficiency, designed to empower both users and employees in Latin America’s financial landscape. Their customer-first ethos stands out and fights complexity to deliver "memorable customer experiences."

This culture has been instrumental in attracting top talent both locally and globally, growing to approximately 9,000 employees by 2023 (from 6,000 in 2021) while maintaining a high talent bar. The company has hired senior leaders from world-class firms, such as a former Uber CTO and ex-Facebook product managers, a rarity for a Latin American company, showcasing its ability to compete on a global stage.

Glassdoor reviews reinforce this, with a 4.4/5 overall rating and 91% of employees recommending Nubank, indicating strong employee satisfaction. Reviews frequently praise the mission-driven work and innovative leadership, which aligns with the founders’ emphasis on challenging the status quo through first-principles thinking.

Nubank’s culture encourages bold innovation, building a digitally-native, cloud-based platform with full ownership of its technology stack, enabling control over its destiny. Employees are empowered to act as "protagonists" in a low-ego, mistake-tolerant environment where learning is prioritized: "making mistakes and learning from them is actively encouraged."

The company’s commitment to diversity is another pillar, with the founders highlighting the importance of "strong and diverse teams" to drive creativity and problem-solving. Hiring the "best and most talented people regardless of their CV or pedigree" creates an inclusive workplace that attracts global talent, fostering a meritocratic culture where employees think and act like owners, not renters.

Nubank’s management consciously nurtures this culture, maintaining a relatively flat structure initially and empowering small, autonomous teams dubbed "mini startups." This structure encourages ownership and accountability, with zero tolerance for status symbols or ego, as the founders note: "there is no ego." Despite scaling rapidly, retention remains strong, with key executives staying, suggesting success in preserving this culture.

Are they able to adapt quickly?

Nubank’s culture of ‘challenge the status quo’ inherently means being adaptive. We saw adaptability in product pivots. When customers asked for a loyalty program, Nubank built NuRewards. When Pix emerged, Nubank integrated it deeply, even though it disrupts some card usage.

When the pandemic hit, Nubank quickly moved to remote work and still kept productivity high. The company’s quick expansions into new verticals shows willingness to pivot and experiment beyond core banking. Launching a mobile MVNO (NuCel) is non-traditional for a bank, but Nubank saw an opportunity to keep customers engaged in their app ecosystem with a telco offering. This cross-industry pivot indicates a fearless, agile culture set by management.

Do they have a healthy risk governance framework?

An important aspect of culture in a bank is risk management culture. Nubank’s management has instilled a modern, quantitative risk culture and simultaneously a cautious lending approach despite appearances. For example, they often started customers with low credit limits to learn behavior, then gradually increased. This is a cultural decision to prefer safe growth in credit vs. aggressive lending for short-term gains. Their CRO’s background and early hiring indicates they built robust risk frameworks early. By 2018 they had a CRO and risk team even while private. They maintain a culture where risk concerns can be raised. That shows a healthy balance in culture between growth ambition and decent risk oversight.

Products and Services

Nubank offers several products or services. What started with a credit card offering has been extended with a full platform of financial products, for both consumers and business owners (SME’s). Over time, customers tend to adopt more of Nubank’s financial products, further boosting their overall engagement and the revenue generated per customer. Let’s dive into all these different products, their key features, success to date and recent developments.

Nubank Credit Cards

Nubank’s flagship product is its Nu credit card, a no-annual-fee Mastercard launched in Brazil in 2014. It functions as both a credit and prepaid card with a fully digital experience. Customers can apply and manage everything via the mobile app, including credit limit adjustments, blocking/unblocking the card, and bill payments.

Key Features

• No annual fees or maintenance charges, breaking from traditional bank card fees.

• Provides digital wallet integration by supporting Apple Pay, Google/Android Pay, and even WhatsApp payments (for the prepaid mode) for convenient contactless use.

• Mastercard backing means global acceptance at over 150 million merchants worldwide.

• The app offers granular control: real-time spend alerts, instant card locking / unlocking, due date management, and even disposable virtual card numbers for secure one-time purchases.

• Unique options like installment discounts for early repayment and investment-backed credit limits, where customers can pledge investments to increase their credit line, enhance flexibility.

• For small business owners, Nubank extended this model. Nu Business credit cards offer entrepreneurs the same no-fee, app-managed card benefits, with added ability to transfer limit between personal and business cards for flexibility.

Success to date

Nubank’s credit card pioneered a transparent, customer-friendly approach in Latin America. The absence of fees and the 100% digital onboarding were revolutionary in Brazil’s card market, providing many users their first-ever credit access. By 2024 Nubank reached over 60 million unique credit card customers in Brazil, about 34% of the 14+ population, indicating massive inclusion of first-time cardholders. It holds about 15% of total credit card purchase volume market share in 2024.

A similar impact is seen in Mexico: Nubank launched in 2019 and rapidly became the country’s leading card issuer by 2024 with 5.6 million Mexican card customers, 50% of whom had never had a credit card before Nu. It controls a 5% share of Mexican card purchase volumes by 2024.

This product’s success is measured not only in customer count but also engagement: Nubank cardholders show very high activity rates, which in turn drive fee income (interchange, interest) for the company.

Recent developments

Nubank has continuously enhanced its credit card offering. In recent years it introduced a suite of ‘transaction financing’ features that augment credit card functionality, for example, customers can split an existing purchase into installments after the fact (Purchase Financing), pay utility bills or rent via card and installment (Boleto Financing), or even send instant Pix transfers using their credit line (Pix Financing). These features, all manageable in-app with transparent simulations, effectively turn the credit card into a multi-purpose credit line, boosting interest-earning receivables and customer stickiness.

Nubank also rolled out contactless payment support and digital wallets integration early, and in 2023 it launched Nubank+ and Ultraviolet tiers which build loyalty through cashback and perks tied to card usage.

On the SME side, Nubank added the ability for business owners to request additional corporate cards and enabled Apple Tap-to-Pay on iPhones, turning phones into POS terminals for card acceptance.

Nubank Digital Accounts - NuConta and Cuenta Nu

Nubank offers a fully digital bank account that serves as a checking and savings hybrid. In Brazil this began as the ‘NuConta’ in 2017, and in Mexico and Colombia it is called ‘Cuenta Nu’. The core functions include holding deposits, making transfers and payments, and earning daily interest on balances.

Key features

• There are no monthly fees or minimum balance, a stark contrast to traditional banks’ checking accounts.

• Idle balances are automatically invested in Brazilian government bonds or time deposits, yielding 100% of the Brazilian interbank rate (CDI) with instant liquidity. Similarly in Mexico, Cuenta Nu offers a very attractive savings APR (around 13% at launch, far above market averages).

• Customers enjoy unlimited free peer-to-peer transfers and bill payments, including Pix instant payments in Brazil, at no charge.

• A complimentary contactless debit card is provided for ATM withdrawals and purchases from the account balance.

• The app includes a ‘Payments Assistant’ to organize recurring bills and reminders, ability to set aside money in ‘Reserves’ or sub-accounts for budgeting goals, and an option to lock funds as a time deposit for higher yield. Customers can also schedule automatic savings contributions to instill good habits.

Success to date

Nubank’s account stands out for its simplicity and generous terms. By eliminating fees and offering interest on all deposits, it attracted customers who were frustrated with legacy banks. The ease of opening an account digitally in minutes (using just an app and an ID) brought many unbanked or underbanked individuals into the financial system.

In Brazil, NuConta launched in 2017, rapidly scaling as a free alternative to bank accounts. By Q2 2025, Nubank Brazil had over 107 million customers, many of whom use the account, representing 60% of Brazil’s adult population. Deposits reached USD 36.6 billion by mid-2025, reflecting strong trust in Nubank as a primary bank.

In Mexico, Cuenta Nu was introduced publicly in May 2023 and saw explosive uptake, it reached 1 million accounts in its first month and helped propel Nu Mexico to 10 million customers by the end of 2024. The launch of Cuenta Nu was highly disruptive because it offered an 13% annual yield vs. <1% at incumbents, with 24/7 access and no minimums. By 18 months post-launch, Nu Mexico had USD 3.8 billion in deposits, indicating that a large share of Mexican users adopted the account product. The availability of ‘Cajitas’, money boxes; a savings goal feature, has been cited as a decisive factor for many Mexicans joining Nu.

Nu Colombia launched its savings account Cuenta Nu in mid-2024, and this immediately boosted customer growth; Colombia’s base nearly tripled to almost 3 million by early 2025 after the account launch.

The interoperability with each country’s payment infrastructure (Pix in Brazil, SPEI in Mexico, etc.) and the seamless integration with Nubank’s other products (one app for card, account, loans, etc.) provide a one-stop financial hub that is a key selling point.

Overall, Nubank’s accounts have been highly successful: internal data shows over 83% activity rate of customers and surveys in Brazil indicate a large portion of customers consider Nubank their primary financial account.

Recent developments

Nubank has also built a large physical cash network through partnerships, for example, in Mexico it partnered with OXXO stores (30,000+ locations) so that customers can deposit or withdraw cash to their digital accounts easily.

Other recent enhancements include remittances: in 2024, Nu Mexico launched a feature in collaboration with Wise, enabling customers to receive money from the U.S. via WhatsApp.

Nubank Brazil added ‘Locked Deposits’ options, allowing customers to lock a portion of funds for a higher yield. These locked funds can serve as collateral for credit products.

The account’s payment capabilities have also grown: Nubank was among the first to support Pix instant payments since its 2020 debut, and has added Pix keys, QR code payments, and even voice-initiated Pix via WhatsApp. All these updates keep Nubank’s account on par or ahead of competitors in features.

On the SME side, Nubank’s business account has seen new tools like ‘Meus Impostos MEI’ – an in-app tax module to generate and pay monthly tax forms for solo entrepreneurs, reducing bureaucracy for business owners.

A confirmed near-term development in Mexico; having secured a full banking license in April 2025, Nu plans to introduce payroll accounts and other enhanced deposit products. A payroll account would allow Mexican customers to have their salaries deposited directly into Nubank, likely with perks or interest incentives to capture paychecks from traditional banks.

Nubank Personal Lending – Unsecured and Secured

Nubank offers a range of lending solutions, from unsecured personal loans to new secured loan types, all delivered digitally. Personal Unsecured Loans are simple cash loans available to pre-approved Nubank customers through the app. Borrowers can simulate different loan amounts and terms, accept an offer instantly, and receive the money directly into their Nu account within seconds.

Key features