WiseTech’s (ASX: WTC) first-half organic EBITDA grew 7%, driven by 7% organic revenue growth and flat margins. When including the acquired e2open, EBITDA rose 32%, driven by 76% revenue growth, offset by lower margins. Shares jumped 11% as WiseTech plans a 2,000 headcount reduction.

Why it matters: The impact of artificial intelligence dominated the discussion, including a planned 2,000 headcount reduction across customer service and product development by fiscal 2027. This is more than 25% of employees of its current 7,000 employees.

  • We expect the headcount reduction to primarily reflect prior plans to reduce headcount at e2open. We believe e2open, with its history of struggles and lay-offs, has long lost its best talent and operates with lower talent density than the WiseTech business.
  • The deployment of AI agents in its product suite is accelerating. WiseTech expects agents to cut labor costs for clients by 50% in two years. Together with transaction-based pricing since last year, we therefore view AI as a material tailwind, as WiseTech can instantly monetize improvements.

The bottom line: We maintain our fair value estimate for wide-moat WiseTech of $138. Shares sold off by around 60% over the past six months, as markets have become fearful of AI’s impact on software companies. We disagree in this case and believe shares screen as materially undervalued.

  • CargoWise is incredibly comprehensive, following decades of development, meaning it seems highly unlikely to us that competitors can build a direct competitor or build a point solution that is financially viable.
  • On top, WiseTech is an order of magnitude larger than its nearest competitors and has around 5,000 employees (post headcount reductions) that will also be using AI to copy any competing solutions and features and build new features to extend WiseTech’s lead.

AI agents a material tailwind for WiseTech

WiseTech’s long-term strategy centers on becoming the operating system for global trade and logistics as the industry digitizes.

We expect the logistics industry to digitize rapidly over the next decade. The logistics industry currently operates with a relatively low level of digitization. However, the market for logistics services naturally selects for the lowest-cost providers and we see digitization as a key driver of cost-savings. We therefore see the process of digitization as inevitable, either through companies adopting digitization to remain competitive or through digital leaders taking market share from the digital laggards.

WiseTech provides logistics companies the technology to digitize. WiseTech’s core product suite, CargoWise, provides the best-in-class software solution for international freight-forwarding by air and ocean, and customs and compliance. We see logistics companies that use the CargoWise international freight-forwarding solution significantly outperforming their peers due to the efficiency and productivity improvements the platform provides. We therefore expect this solution to become the industry default, either through increased customer adoption or through WiseTech’s customers taking market share.

We expect WiseTech to leverage its already dominant position in international freight-forwarding to move into downstream adjacencies, which consist of, in order of functional proximity, road and rail and warehousing. Additionally, with the acquisition of e2open, we also expect WiseTech to move into upstream adjacencies, as it starts servicing beneficial cargo owners with their logistics procurement processes.

Bulls say

  • CargoWise’s international freight-forwarding solution is best-in-class and we expect this solution to become the industry-default.
  • WiseTech is well placed to leverage CargoWise’s market position in international freight-forwarding into adjacent services such as customs and compliance, rail and road, and warehousing.
  • The logistics industry currently operates with a relatively low level of digitization, but we see the process of digitization as largely inevitable.

Bears say

  • The logistics industry is still in the early stages of digitizing, meaning there is high uncertainty as to how large the market opportunity will be for WiseTech’s current and future products.
  • Following the resignation of founder White from the CEO role and his transition to the board as executive chairman, it is unclear whether the company will have the same level of executive leadership.
  • WiseTech’s hasn’t yet incorporated all of its acquisitions into the CargoWise product suite, and the return on those investments could be dilutive if they lack strategic attention.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years.