Cellebrite DI: Digital intelligence platform with 33% upside potential

Reason 1. Crime trends and the rising importance of digital forensics

Over the past few decades, the overall crime rate in the U.S. has dropped significantly. According to FBI data, the violent crime rate fell by 49% between 1993 and 2022, with substantial decreases in robbery (-74%), aggravated assault (-39%), and murder/nonnegligent manslaughter (-34%). Similarly, property crime rates declined by 59% over the same period, with burglary, larceny/theft, and motor vehicle theft dropping by 75%, 54%, and 53%, respectively. Property crime remains far more common than violent crime, with 1,954.4 property crimes per 100,000 people compared to 380.7 violent crimes per 100,000 people in 2022.

However, public concern about crime has intensified in recent years. In 2024, 58% of U.S. adults believed reducing crime should be a top priority for the president and Congress, a rise from 47% at the start of Joe Biden’s presidency in 2021. These concerns were likely fueled by spikes in certain types of crime. In 2020, for example, the U.S. murder rate experienced its largest single-year increase on record, and in 2022 it remained significantly higher than before the Covid-19 pandemic. Preliminary data for 2023, however, suggest that the murder rate has dropped significantly.

Another important issue in the U.S. criminal justice system is the significant underreporting of crimes and the low resolution rates for those that are reported. According to the Bureau of Justice Statistics (BJS), only 41.5% of violent crimes and 31.8% of household property crimes were reported to police in 2022.

Most of the crimes that are reported to police, meanwhile, are not solved. The FBI's clearance rate — a measure of cases closed by arrest or other means — for both violent and property crime are at their lowest levels since at least 1993. In 2022, law enforcement agencies cleared just 36.7% of reported violent crimes, a sharp decrease from 48.1% in 2013. The situation for property crimes is even more stark. Only 12.1% of reported property crimes were solved in 2022, down from 19.7% in 2013. These trends highlight systemic issues in crime reporting and resolution, underscoring the need for enhanced resources, strategies, and technologies to address these gaps effectively.

Police clearance rates for violent crimes in the U.S.; source: Pew Research Center

Europe has also witnessed several concerning crime trends in recent years:

• In 2022, the EU recorded 3,862 intentional homicides, reflecting a 4.4% year-over-year (YoY) increase, though still below pre-pandemic levels in 2019. Offences of sexual violence also rose significantly, with 231,456 cases reported, a 10.3% YoY increase, continuing an upward trajectory observed since 2015, except for a brief decline in 2020.
• After years of steady declines since 2014, the number of thefts surged in 2022 to 5.1 million cases, a 17.9% YoY increase. Burglaries, which had also been declining since 2014, rose by 7.4% YoY to 1.2 million incidents. Robberies, following a continuous downward trend since 2013, experienced a rebound in 2022 after sharp declines during the pandemic years.
• Fraud, including cyber-related offences, climbed to 2.8 million cases in 2022, a 6.9% YoY increase. Data from 19 of the 26 reporting EU countries showed growth in fraud cases, with 13 nations reaching their highest recorded levels for the 2016–2022 period.

These trends alongside the evolving nature of crimes with increasing digital components are driving the global digital forensics market. With most major crimes — ranging from homicides and anti-terror operations to financial crimes, corporate security breaches, and intellectual property theft — now involving a digital aspect, the demand for advanced digital investigative and forensic solutions continues to rise. These tools play a critical role in facilitating complex investigations across diverse domains, including cryptocurrency-related fraud and organized crime.

Digital investigative solutions are designed to address key challenges faced by investigators. Data fragmentation, where evidence is scattered across geographically dispersed servers, often requires extensive coordination with multiple service providers, delaying evidence collection. Traditional forensic tools struggle to manage petabyte-scale, unstructured cloud data, such as log streams and time-series metadata. Furthermore, legal inconsistencies, such as conflicts between EU GDPR and the U.S. CLOUD Act, add complexity to cross-border evidence retrieval, necessitating individualized negotiations for each case.

As these challenges grow, so does the digital forensics market, which is expected to increase from $13.2 billion in 2024 to $14.97 billion in 2025, up by 13.4%. By 2029, the market could reach $27.54 billion, driven by a compound annual growth rate (CAGR) of 15.8% between 2024 and 2029. This sustained expansion highlights the critical role digital forensics will play in addressing the complexities of modern crime and the growing reliance on technology in investigations.

Global digital forensics market size; source: The Business Research Company

Reason 2. Cellebrite leads the digital forensics with innovations and strategic expansion

Cellebrite DI is a leading global provider of digital investigative (DI) solutions designed to improve investigative workflows for both public and private sector customers. The company develops DI software solutions that enable users to access, collect, review, extract, decode, decrypt, analyze, share, and manage digital evidence throughout the investigative lifecycle. These solutions, integrated into the company's comprehensive Case-to-Closure (C2C) platform, are tailored to improve the performance of law enforcement agencies.

Serving approximately 7,000 customers worldwide, Cellebrite's client base includes approximately 5,300 federal, state, and local law enforcement and government agencies as well as 1,700 corporations and service providers. In 2024, Cellebrite’s public sector customers accounted for more than 90% of total revenue. As for the regional presence, the Americas contributed 53.7% of its total revenue in 2024, followed by the EMEA region at 33.6% and the APAC region at 12.6%.

Revenue mix in 2024 by region; source: compiled by author

Cellebrite has a robust product portfolio designed to empower investigative teams with cutting-edge tools for digital forensics and evidence management. These solutions cater to a wide range of needs, from extracting and analyzing digital data to managing cases and evidence securely. The portfolio includes the following key offerings:

• Inseyets: A powerful digital forensic software designed to extract data from the widest range of devices, including smartphones, feature phones, basic phones, computers, and cloud-based applications. It can access encrypted, deleted, or hidden data and convert raw binary data into a human-readable format for analysis.
• Guardian: A SaaS-based case and evidence management platform that securely stores and manages digital evidence, reinforcing the chain of custody. By streamlining investigations, Guardian enhances the admissibility of digital evidence during trials.
• Pathfinder: A tool that automates data analysis and visualization, reducing the manual effort required to review digital evidence. This enables investigators to uncover actionable insights across various crime types more efficiently.
• Cryptocurrency Investigative Solutions: Specialized solutions for analyzing blockchain transactions and related data. They help investigators identify and categorize wallets and transactions by integrating data from an extensive list of sources.
• Smart Search: A SaaS-based solution that automates the collection and review of publicly available online data, including content from social media platforms. It provides investigators with relevant online information and generates standardized, shareable reports quickly.

Moreover, Cellebrite provides professional services to enhance the capabilities of investigation teams. It delivers product training and certification programs to investigation practitioners. In 2024, Cellebrite offered 23 training courses. Additionally, Cellebrite’s Global Lab facilities serve as an extension of customer forensics teams, offering advanced services to access and extract digital evidence for active, legally sanctioned investigations.

The company operates a business model designed to align with customer needs while ensuring sustainable growth and financial stability. Several key aspects define its approach:

• Revenue seasonality: The majority of its revenue is generated in the second half of the fiscal year, accounting for 54% of total annual revenue in 2024. This seasonal trend is driven by the timing of subscription agreements for on-premise software solutions. U.S. federal customers often finalize agreements before the end of their fiscal year in September, while many other global customers align purchases with the December fiscal year-end.
• Subscription-based model: Over recent years, Cellebrite has transitioned the majority of its customers from perpetual software licenses to subscription-based models. In 2024, subscription licenses accounted for 88% of the company’s total annual revenue.
• Strong cash flow generation: Cellebrite’s business has historically been characterized by strong cash flow generation from operations and minimal capital intensity. This enables it to pursue a disciplined growth strategy that includes acquiring complementary businesses.

Revenue mix by type of services; source: Q4 & FY2024 Earnings Presentation

Cellebrite’s growth strategy is prioritizing advancements in three primary spheres:

• Product development: Cellebrite is focused on transitioning its legacy digital forensics software users to its flagship product, Inseyets. In 2024, the company successfully migrated approximately 20% of its installed digital forensics license base to Inseyets, and in 2025, it plans to accelerate this transition among existing customers. Additionally, Cellebrite will continue investing in the enhancement of Guardian and Pathfinder, while actively pursuing the development of new investigative solutions.
• Technology innovation: Since 2016, the company has invested in artificial intelligence (AI) and machine learning (ML) to enhance its solutions. Recently, Cellebrite has expanded its investment in AI by incorporating generative AI capabilities to further improve its products. Substantial resources have also been allocated to develop high-value, cloud-based solutions.
• Customer engagement: To strengthen its ability to serve U.S. federal customers, Cellebrite has established Cellebrite Federal Solutions as a separate entity and acquired CyTech, gaining authorized participation in key federal programs. The company is also driving cloud adoption among federal agencies through investments in initiatives such as the Federal Risk and Authorization Management Program (FedRAMP®). For expansion in the private sector, Cellebrite has partnered with Relativity ODA LLC, a leading provider of e-discovery solutions. This partnership focuses on the integration of Cellebrite’s Endpoint Inspector and Endpoint Mobile Now offerings with Relativity’s RelativityOne platform.

Therefore, Cellebrite seems well-positioned to maintain leadership and drive sustained success in the digital forensics space. Its subscription-driven business model ensures predictable revenue and fosters long-term customer relationships. Additionally, the company’s growth strategy capitalizes on product development, strategic acquisitions, and partnerships to enhance its market presence.

Reason 3. Robust 2024 financial results and prospective 2025 forecast

Annual Recurring Revenue (ARR) is a key non-GAAP financial metric critical for evaluating the operational effectiveness of subscription-based businesses like Cellebrite. ARR represents the annualized value of active term-based subscription license contracts and maintenance contracts for other non-recurring services in effect at the end of a given period. It is calculated by multiplying a full month’s revenue from these contracts as of the last month of the period by 12.

In 2024, Cellebrite demonstrated strong ARR performance, achieving a 25% YoY increase to $395.9 million. This growth was driven primarily by increased spending within the company’s installed customer base and a notable growth retention of approximately 92%. The retention improvement was attributed to reduced impacts from prior voluntary market exits and robust renewal rates, particularly among U.S. federal customers.

ARR and total ARR growth; source: Investor Presentation, February 2025

ARR performance from the product perspective:

• Inseyets was the largest contributor to ARR growth, driven by high demand and successful deals with law enforcement and government agencies. In Q4 2024, Cellebrite concluded three significant agreements within this segment.
• Guardian delivered triple-digit percentage ARR growth YoY in the second half of 2024. The number of customers using both Inseyets and Guardian nearly tripled, and the volume of stored data increased fivefold.
• Pathfinder exhibited strong ARR expansion in Q4, with YoY growth aligning with the company’s expectations of 35% to 50%.
• Cloud-based offerings demonstrated exceptional momentum, with ARR from these solutions nearly doubling to represent 17% of total ARR by year-end 2024.

Cellebrite made significant progress in cross-selling Guardian and Pathfinder across existing and new customer bases. On a combined basis, ARR for these two products grew nearly 50% in 2024, now accounting for approximately 10% of total ARR, up from the mid-single digits a year prior.

Moreover, the U.S. federal delivered ARR growth in the mid-20% range. Investments in this segment, including the formation of the Cellebrite Federal Solutions Unit and associated clearances, have bolstered the company’s ability to serve federal customers effectively. The management anticipates continued strong growth in this sector through 2025, supported by an expanding pipeline and enhanced capabilities.

Additionally, in Q4 2024, revenue reached $109 million, representing a 17.2% YoY increase and exceeding analysts' forecast of $107.3 million, as reported by FactSet. The revenue growth was fueled by a 28% increase in subscription services and a 21% increase in total subscription software. Non-GAAP gross margin, which excludes share-based compensation, amortization of intangible assets, and acquisition-related expenses, stood at 84.4%, reflecting slightly higher costs for hosting and the impact of increased hardware sales associated with Pathfinder deals and Inseyets adoption. Quarterly adjusted earnings were $0.10 per diluted share, meeting analysts’ expectations but slightly down from $0.11 in Q4 2023.

Quarterly revenue dynamics; source; compiled by author

For the full year, Cellebrite reported total revenue of $401.2 million, an increase of 23.4% over the prior year. The growth was primarily driven by a 26% increase in total subscription software revenue, supported by modest gains in non-recurring hardware sales. Flat revenue in professional services partially offset these gains. Non-GAAP gross margin for 2024 was 85%, an improvement from 84.2% in the prior year, due to the expansion of high-margin software offerings and enhanced efficiency in professional services. Cellebrite reported adjusted EBITDA of $99.4 million for the year, a 60% YoY increase, with an adjusted EBITDA margin of 24.8%, up from 19.1% in 2023.

Cellebrite has issued a positive forecast for 2025, underpinned by expectations of strong growth across key metrics and continued demand for its subscription-based solutions:

• ARR is projected to reach $480 – $495 million, a 21%–25% YoY growth. This increase reflects expected advancements in upgrading customers to Inseyets, further adoption of cloud-based solutions, and expanded penetration of Guardian and Pathfinder.
• Full-year revenue is anticipated to range from $480 million to $490 million, a 20%–22% YoY growth. Major growth drivers include subscription software, supported by modest expansion in professional services and hardware sales. Consistent with historical patterns, approximately 53%–55% of the revenue is expected to be generated in the second half of the year.
• Adjusted EBITDA is expected to fall within $113–$123 million, with margins of 24%–25%. Higher adjusted EBITDA and margins are projected in the second half of the year, consistent with seasonal revenue trends.

Q1 2025 and full-year 2025 guidelines; source: Q4 & FY2024 Earnings Presentation

On top of that, the management highlighted several headwinds that may have a material impact on Cellebrite’s results. First, in Q1 2025, ARR growth may be negatively impacted by the company’s decisions to exit certain countries due to ethical and integrity reasons. Secondly, geopolitical uncertainties, particularly in the U.S. and other regions, are expected to modestly delay purchasing activity in specific industries during Q1 2025.

Thus, Cellebrite is a leader in digital intelligence solutions, offering a robust product portfolio tailored to the needs of the public and private sectors. With a solid track record of ARR and revenue growth, enhanced by investments in AI and cloud-based solutions, Cellebrite is well positioned to capitalize on future opportunities. However, broader market volatility and geopolitical uncertainties pose near-term risks for investors.

Financial performance

Cellebrite’s 2024 financial results can be summarized as follows:

• Revenue increased to $401.2 million, up by 23.4% compared to 2023.
• Gross profit grew by 24.5%, from $271.9 million in 2023 to $338.6 million in 2024. Gross margin improved from 83.6% to 84.4%.
• Operating income surged by 71.7% and accounted for $57.1 million in 2024. Operating margin expanded from 10.2% to 14.2%.
• Net loss increased from -$81.1 million in 2023 to -$283.0 million in 2024. The loss stemmed from non-cash accounting adjustments, particularly the remeasurement of liability instruments (restricted sponsor shares liability, price adjustment shares liability, and remeasurement of warrant liability), which accounted for -$349.6 million in 2024.

Dynamics of annual financial results; source: compiled by author

Cellebrite generates solid cash flows. In 2024, cash flow from operations (FFO) accounted for $132.2 million, up by 29.5% YoY, driven by non-cash items and reconciliation adjustments, as well as improvements in net working capital. Free cash flow (FCF) soared by 29.1%, from $94.1 million in 2023 to $121.6 million in 2024, in line with FFO dynamics since the company’s business model requires minimal capital expenditure.

Dynamics of annual financial results; source: compiled by author

Cellebrite's financial performance for Q4 2024 is presented below:

• Revenue increased by 17.2% YoY, from $93.0 million to $109.1 million.
• Gross profit grew by 17.1% YoY, from $78.1 million to $91.4 million.
• Operating income increased by 4.5% YoY, from $15.1 million to $15.7 million.
• Net income skyrocketed 2.32 times YoY, from -$14.7 million to $19.3 million.

Dynamics of quarterly financial results; source: compiled by author

Cellebrite maintains a robust balance:

• The leverage ratio, defined as the ratio of total debt to assets, stands at 2%, which is much better than the industry average of 8%.
• As of December 31, 2024, the company had no outstanding debt. Long-term liabilities included $6.9 million in other long-term liabilities, $45.2 million in deferred revenue, and $6.8 million in operating lease liabilities.
• The company ended 2024 with $447.2 million in cash and short-term investments.

Stock valuation

Cellebrite trades close to the average multiples of its peers: P/E — N/A, P/СFFO — 33.77x, EV/Sales — 9.68x, EV/EBITDA — 57.36x. However, the company operates in the niche DI software market, has an efficient business model and solid growth opportunities. Thus, it offers a better return per unit of risk taken.

Comparable valuation; source: compiled by author

The minimum price target set by Lake Street Capital Markets is $26.0 per share, while an undisclosed investment bank values Cellebrite at $29.0 per share. According to the Wall Street consensus, the stock’s fair market value stands at $26.0, implying a 33% upside potential.

Price targets of investment banks; source: compiled by author

Key risks

• Cellebrite's business is subject to complex U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, AI and other matters. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims against the company's business practices.
• The company's business depends on customers renewing their subscriptions and purchasing additional subscriptions or services. Any material decrease in the dollar-based net retention rate would harm Cellebrite's future operating results.
• Cellebrite could be adversely affected by negative publicity related to its business. As Cellebrite's business has grown and interest in the company has increased, the company has been the subject of news and other media coverage, which may result in negative public sentiment.
• Sales to government customers expose Cellebrite to business volatility and risks, including government budget cycles and appropriations, cancellation, audits, investigations, sanctions and penalties.
• The use of certain Cellebrite solutions may be perceived as, or determined by the courts to be, a violation of privacy rights, human rights and related laws. Any such perception or determination could adversely affect Cellebrite's financial results.

* This investment idea is provided to you as part of the additional service "Investment research and financial analysis" in accordance with License 275/15.

** The company may participate in trading the financial instruments mentioned in this material, acting as a counterparty or a liquidity provider. However, all the recommendations and information presented in this material are independent in nature and are not associated with the company's trading positions. We take all necessary steps to prevent any conflict of interest and to ensure the objectivity of the information provided.