Fortnox disclosed several interesting data points regarding its customer structure and the difference in customer mix relative to the 2021 CMD. Fortnox has a target of reaching 700,000 customers by the end of 2025, compared to 556,000 by the end of Q1 2024. Assuming a linear growth in absolute numbers, Fortnox is somewhat behind the target, and we expect 647,000 customers by the end of 2025. While management feels confident in reaching the target, it believes it is an aggressive target. Also, according to the 2020-2025 business plan, Fortnox expects a higher absolute net customer intake during the latter parts of the period, probably partly related to a stronger offering to tiny businesses.

Fortnox’s position is strongest among companies with 1-9 employees, with companies with 1-4 and 5-9 employees being overrepresented by ~100% and ~50%, respectively – aligning well with our expectations.  Also, we note that less digitalized sectors like Agriculture and Culture & Entertainment are underrepresented.

As shown on the graph above, Fortnox has increased its market share in all relevant size segments.

While analysts (us included) tend to talk about the number of started companies and bankruptcies as drivers in Fortnox’s new customer intake, the graph below shows their small numbers compared to Fortnox customers. Although the number of started companies (about 15,000-20,000 per quarter) has some impact, the bankruptcies of around 1,000 – 2,000 per quarter have a limited impact on Fortnox.

Regarding accounting firms, which bring in about 75% of new customers, Fortnox has strengthened its partnership market share among medium and small firms while it has decreased somewhat among large firms. However, all Big 5 firms remain Fortnox users.

We understand that Fortnox has not lost customers in the Large category. However, due to consolidation in the accounting firm industry, the number of firms in the Large category has increased, explaining the decrease in the share of firms Fortnox works with.

Overall, we believe the data, showing many tiny companies left to win, supports management’s expectations of reaching 700,000 customers by the end of 2025 – although our assumptions are somewhat softer. At the same time, a more robust inflow of smaller customers should have a slight negative impact on ARPC. On the other hand, Fortnox has high ambitions and several new features that are attracting additional larger companies, which might compensate.

The Average Revenue per Customer (ARPC) data highlighted the substantial difference depending on what party is working in the system. While we were aware that the “pure” accountant-managed customers have lower ARPC than customers managing by themselves to at least some extent, we did not assume such a substantial difference.

By ignoring the circa 2% accounting firms, we can estimate the ARPC for each customer group (see appendix for calculations):

The ARPC and contribution from customers, which only the accountant manages, are very limited compared to when a business representative is involved in some way. Thus, there is significant ARPC potential in converting customers into collaborating with their accountants. While the size and needs of each customer is important for the potential APRC, we believe the difference in this case largely depends on digital maturity. Thus, we believe Fortnox can move most of these accountant-managed customers over time. However, it is hard to say at what rate.

But what is in it for the accounting firms? Does it not imply less revenue for them? In some way, yes. However, by letting the business representative do some basic tasks, the accounting firm can handle additional customers and focus on areas with higher value-add – where their expertise is needed. From the business’s perspective, the move is rational as well. By doing some easy tasks by themselves, the companies can reduce their accounting costs significantly, which typically will compensate for the SEK~500 increase in software costs. Paying SEK10,000 – 15,000 per month for accounting services is not unusual, assuming a 30% decrease as the businesses do some easy tasks themselves, SEK~500 in additional software costs is negligible.

As for the software itself (we assume entrepreneurs focus on their businesses rather than optimizing their accounting costs), we believe the transition to collaborating with the accountant has switching costs for the business, which probably explains how ~50% of customers are managed by accountants only. However, we expect a gradual migration, partly as the average entrepreneur matures digitally.

During the CMD, Fortnox gave examples of the ARPC contribution from different workflows, Accounts payable, Employees, and Accounts receivables for the fictional example company Roffes Bygg AB.

While the Offerta och Factoring services boost the number by SEK16,000, the other parts bring in about SEK1,600 in ARPC. Thus, even when excluding the two largest contributors, the potential ARPC with current products is well above the current ARPC of SEK276 (R12m). Also, Offerta and Factoring are likely attractive offerings to at least a few per cent of all customers, which, considering their high ARPCs, has an important impact on sales.

Considering the ARPC data shown in the Roffes Bygg AB example and in the Customer segment mix, the ARPC potential is substantially higher than the current target of SEK300. However, the tricky thing is determining how many customers each product and service is relevant to and how fast Fortnox can convince customers to use them.

Our unrevised forecasts assume SEK328 in ARPC in 2025 – slightly above the SEK300 target – SEK639 in 2030, and SEK998 in 2035. Considering that customers that have their own representatives working in Fortnox software in some form have an ARPC of about SEK400-600 today, our forecasts seem somewhat on the defensive side – especially considering Fortnox's ability to raise prices.

On the other hand, the customers managed by accountants might just be smaller and with less need for Fortnox products and services. However, we believe very small companies generally manage their accounts by themselves, implying that the SEK400-600 range is reasonable for most of the customers managed by accountants.

Overall, we believe the ARPCs from customers that have their own representatives working with Fortnox, the company’s pricing power, and potential ARPC from new initiatives – such as payments, expected to launch later this year – suggest a higher ARPC long-term compared to our unrevised forecasts.

While leaving our short- and mid-term forecasts unchanged, we increase our long-term ARPC forecasts following the data disclosed at the CMD. Considering the current SEK400-600 ARPC among customers with business representatives working with Fortnox, we believe our previous long-term forecasts were too defensive. In addition to migrating customers to having business representatives working with Fortnox, there is vast potential for new products and services and price increases.

We leave our 2025 ARPC forecast unchanged while increasing 2030 and 2035 by 9-10%. Although our assumptions are far below potential numbers, we believe it makes sense to keep some defensiveness in forecasts for the very long term.

We increase our Base Case to SEK73 (66) following increased long-term ARPC forecasts.