Alkami Technology, Inc. (NASDAQ: ALKT) manages a cloud-based, customizable, digital banking platform for community, regional and super regional credit unions and banks. Founded in 2009 and headquartered in Plano, Texas, Alkami’s technology platform helps financial institutions onboard and engage new users, accelerate revenues, and improve operational efficiency. Key functions include account opening, money movement, personal financial management, and fraud prevention.
The company is tracking towards a $340 million plus annual recurring revenue run rate generated by 266 digital banking customers, 19.5 million end-users and a 97% client retention rate. Profitability per bank client follows the on-boarding process, and in 3Q24 gross profit margin stood at a healthy 62%, with guidance for 65% or better in 2026. Furthermore, Adjusted EBITDA is finally benefiting from economies of scale, with 3Q24 at 10% and a 2026 target doubling to 20%. This compares favorably to the negative Adjusted EBITDA performance in the prior four years.
There is a good reason for Alkami’s success. The company’s services are robust, and they fill a desperately needed competitive gap at smaller financial institutions in the US; the ability to offer similar full service online banking functions as much larger institutions. Alkami helps level the competitive landscape against the super large money center banks, which are present in most states, command billions of dollars in IT budgets, and represent approximately 50% of all consumer demand deposit accounts (checking) in the country. The money center banks were forced into acquisitions during the great recession which made them even bigger and widened the resource canyon between them and all other financial institutions. That trend only worsened as the four super powerful money center banks (JP Morgan, Bank of America, Wells Fargo and Citibank) upgraded their online and mobile banking offerings, leaving all others to fend for themselves.
Alkami actively targets and supports businesses and consumers at financial institutions with less than $50 billion in assets, and sizes the total addressable market (TAM) at 210 million end-users. The company has penetrated less than 10% of that opportunity and their largest competitor, Q2 ( NYSE: QTWO ) commands 12% of the TAM, leaving plenty of room for both companies to grow. However, there’s an overarching market trend that’s working against both players: the pace of new account openings is reported to be slowing within Alkami’s and Q2’s TAM. Assuming this is the case, there are a few reasons why: 1) money center banks’ end-user service offerings are better than ever, 2) between 2010 and 2020, fintech giants like Fiserv and FIS were in active acquisition mode which may have caused smaller financial institutions to pause the launch of new services, and 3) the current administration’s immigration policies are negatively impacting smaller financial institutions’ banking activity.
Nonetheless, there’s a large untapped pool of credit unions and community banks which could use Alkami’s industrial strength services today.
