WiseTech’s fiscal 2025 results saw underlying net profit after tax up 30%, driven by 17% organic growth in CargoWise revenue and continued efficiency gains. The company guided for similar organic revenue growth for CargoWise in fiscal 2026.

The result and near-term guidance were below expectations. It expects essentially similar organic revenue growth for CargoWise in fiscal 2026, with a skew toward the second half of the year. This is despite prior guidance for revenue growth to accelerate, likely why shares are down 12%.

While disappointing in the near term, several new medium-term growth initiatives were introduced, which we think are promising.

The company is launching artificial intelligence assistants that will help freight forwarders become more productive by automating tasks and providing quality control.

To mitigate the potential revenue impact of the expected productivity improvements, WiseTech (WTC) is also changing the CargoWise commercial model so that it is not partially seat-based but is fully transaction-based.

Increasing our Fair Value

We increase our fair value estimate for wide moat WiseTech by 6% to AUD 138. Shares screen as materially undervalued and not reflective of the high likelihood that WiseTech will essentially capture the entire freight-forwarding market, from its current approximately 10% market penetration.

We view WiseTech as a Kingmaker, meaning we believe freight forwarders that use the CargoWise product suite outperform their competitors and gain market share. As a result, we expect it to take the market, either through new customer acquisition or existing customers taking share.

We consider the new AI products and the corresponding revenue model change as indicative of a leap in productivity improvements, and therefore, reinforcing the likelihood that users of CargoWise will continue to outperform competitors.

New AI products encouraging

The market was disappointed with the result given expectations for near-term revenue acceleration. While we also think the near-term outlook is disappointing and have lowered our near-term forecasts, we are nevertheless highly encouraged by the company’s new AI products.

Two AI product suites were announced: AI Workflow Engine and AI Management Engine. Workflow Engine seems geared toward what we would consider highly automatable tasks, such as data ingestion, entry, and classification. For example, Document Manager, a subset of the Workflow Engine suite, can automatically review documentation and request missing information.

Management Engine seems focused on exception management, which is a big challenge in logistics. We believe this functions primarily as a quality control suite. We consider both suites as highly suitable applications of AI and expect strong customer uptake.

The fact that the company has released these products alongside a new commercial model attests to our view that the company is confident these products will drive significant productivity improvements.

Under the prior seat plus transactions commercial model, most of the benefit of such improvements would have accrued to WiseTech’s customers and it may even have been worse off.

For example, if we assume a 50:50 split between seat-based revenue and transaction-based revenue, a doubling of productivity per employee could cut headcount in half for WiseTech’s customers and in turn reduce its seat-based revenue by 50%. Even if the number of transactions potentially stays constant due to each remaining staff member performing twice the number of transactions they used to, this would still reduce its overall revenue by 25%.

However, with a fully transaction-based model, this potential impact is avoided. Moreover, we expect such productivity improvements to significantly improve the cost structure of WiseTech’s customers, therefore affecting their own win rates. This, in turn, will likely increase the number of transactions for WiseTech as customers take share.

Based on guidance, we believe the new commercial model to be introduced may have slightly lower initial overall costs for customers. Given the many price hikes in recent years, this makes sense. However, we expect WiseTech to eventually monetize the new productivity improvements it has enabled via price hikes.

WiseTech Global (WTC)

  • Moat Rating: Wide
  • Fair Value estimate: $138 per share
  • Star Rating: ★★★★

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