Modulight Q3'25: Risks grew more than potential

Translation: Original published in Finnish on 10/27/2025 at 7:00 am EET.

Modulight's revenue grew significantly, and its losses narrowed from a weak comparison period. In relation to our forecasts, the report was largely as expected, though revenue was slightly below our estimate. While Modulight's 2025 performance has improved from before, there are no reliable signs yet of continued strong growth in the future. Therefore, we are moderately decreasing our ambitious growth estimates. The cash burn also increases the financing-related risk quarter by quarter and partly weakens the risk/reward. We lower our target price to EUR 1.3 (was EUR 1.6) and our recommendation to Reduce (prev. Accumulate) in accordance with the estimate changes. 

Revenue grew strongly year-on-year but fell slightly short of our estimate

Modulight’s business appears to have become more stable than before, with no significant volatility between quarters this year. This is likely due to the increasing share of recurring revenue (PPT model) in the total. The company's Q3 revenue was 1.77 MEUR, which was 7% below our estimate (1.90 MEUR). Growth from the weak comparison period in Q3’24 was 176%. Revenue declined by 10% quarter-on-quarter, which we believe is due to the quantum computing project that was largely accomplished in Q2 and had a smaller impact in Q3. The company did not provide a concrete outlook for the rest of this year or next year. Currently, visibility for strong, reliable revenue growth drivers for the coming year is low, despite good, steady progress in the PPT model, for example.

Loss was slightly lower than we expected

EBIT of -1.22 MEUR slightly beat our estimate of -1.33 MEUR. This outperformance can be explained by a higher-than-expected gross margin, which appears to have more permanently reached the high level seen prior to the difficulties. The high-margin PPT model is likely to positively impact this. Operating costs were largely in line with our expectations during the quarter. Cash flow from operating and investing activities was -1.47 MEUR. Accounts receivable increased during the previous quarter and remained at a high level (2 MEUR). The unwinding of receivables should partly improve cash flow in the future. Net cash at the end of the period amounted to 7.3 MEUR (Q3'24: 13.5 MEUR). At the current burn rate, net cash will suffice for roughly just over another year. Regarding the financial situation, risks have increased quarter by quarter, even though our estimate still shows the cash position as barely sufficient. Nevertheless, owners should be prepared for the possibility of a financing round.

We decrease our estimate for the rate of growth

Our estimates have included expectations of strong growth. Although Modulight's development has been positive since Q4'24, the latest report did not fully support the continuation of the strong growth we had estimated for the coming quarters and years. We are therefore moderately lowering our growth expectations for the coming years. Based on the cost savings resulting from the change negotiations, we raised our estimates for gross margin development and lowered our forecast for operating costs. These changes mitigate the impact of revenue changes to the earnings lines.

Risks increased in relation to potential

The valuation relies heavily on future projections, which carry a high degree of forecasting risk. EV/S multiples are 7x-5x for 2025-2026, which we find cautiously attractive based on the growth potential. Conversely, increased financial risk and signs of a flattening growth curve for revenue weaken the risk/reward ratio. The DCF model (EUR 1.3) indicates that the share has little upside. We emphasize that a sufficient expected return on the share requires continued positive development, for which we currently lack sufficient evidence.