The Digital Identity Market as an Opportunity & a CEO interview (Freja)

Hello, dear readers!

Today, we dig into the exciting opportunities within the Digital identity market with an exclusive interview with Freja eID’s CEO. We also have the regular tech brief update and highlight a stock idea in Shopify.

Enjoy!

RESEARCH NOTES

The Digital Identity Market as an Opportunity

The market for digital identification is on the rise. In Sweden, where I live, almost every adult uses a digital ID multiple times daily. It can be used for tax filings, logging into bank systems, transferring money through Swish (Venmo in Sweden), taking out prescribed medicine, confirming your identity for package delivery, and much more. In Sweden, we are at the forefront of this, but I would expect that the adoption of digital identification will adopted in most countries in the coming 5-10 years. Therefore, this is an exciting market in which to look for investment opportunities.

This research note explains some underlying trends, market sizes, and opportunities.

It’s not easy for an investor to get direct exposure to an interesting and growing trend, but we will highlight a publicly traded company named Freja eID (FREJA). They are an up-and-coming digital ID solution based in Sweden, but to grow in new markets.

We have interviewed Johan Henriksson, the CEO of Freja eID, about the opportunities his company sees ahead. More on that further down!

Trends

Multiple trends drive the growth within the digital identity market. Here are a couple of them with some short explanations:

• Digital Transformation: Businesses across various sectors are striving to digitize their operations, creating a strong demand for digital identity solutions.

• Need for Cost Savings and Efficiency: The persistent need for cost savings and improved efficiencies is a key driver of the digital identity market.

• User Experience and Convenience: The removal of friction in customer engagement is another key driver. This is evident in the rise of passwordless authentication and the increasing value of biometrics.

• Data Privacy and Security Regulations: Meeting ever-increasing data privacy regulations and security requirements is driving market innovation. This is particularly relevant in sectors such as biometrics, encryption technologies, payment wallets, and self-sovereign identity.

• Rise in AI/ML-Powered Services: The introduction of AI/ML-powered services is contributing to the growth of the digital identity solutions market.

• Rise in ID Wallet Solutions: The increase in ID wallet solutions is another factor contributing to the market's growth.

• Increased Awareness of Privacy: The growing awareness and concern for privacy among users is driving the demand for secure digital identity solutions.

• Rising Cybersecurity Threats: The increase in cybersecurity threats is pushing the need for more secure digital identity solutions.

• Growth of E-commerce and Online Services: The expansion of e-commerce and online services is driving the need for secure and efficient digital identity solutions.

• Advancements in Mobile and Biometric Technologies: The advancements in mobile and biometric technologies are contributing to the growth of the digital identity market.

• Use of Blockchain Technology: The use of blockchain technology in digital identity solutions is also a key driver of the market's growth.

The global size of the digital ID market

We have found various estimates on the projected size and growth rate of the global digital identity market: The global digital identity solutions market size was valued at USD 27.51 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR)^[1]. Another source projects the market size to grow from USD 34.5 billion in 2023 to USD 83.2 billion by 2028, with a CAGR of 19.3%^[2].

The Europe Market for digital identification

The Europe digital identity verification market is expected to grow at a compound annual growth rate (CAGR) of 15.65% during the forecast period of 2023 to 2032, and is projected to reach a revenue of $10,980.35 million by 2032^[1].

The Swedish market size

In Freja’s year-end report, they included an estimate of the TAM of the Swedish market. Both for personal and corporate digital identification. The current market size for eID in Sweden is estimated to be worth 1.9 billion SEK per year. This estimation is based on several segments and assumptions.

Interview with the CEO of Freja eID

K.L: Maybe you could start by providing a brief background to Freja eID and explaining what problem you solve for your customers and users.

J.H: When I was part of founding the company in 2002, it was about creating conditions for everyone to have a strong and secure identity and permanently close the door to fixed passwords written on small notes. Through Freja eID, we have come a long way by offering a platform that works for individuals in the workplace and in physical contexts. Fundamentally, it's about knowing who you are communicating with, but over time it has also become important to get other information linked to the person logging in.

K.L: You released updated KPIs for Q4’23 on January 11. Among other things, you showed an ARR growth of 108%, and your ARR reached SEK 20.4 million. What were the primary drivers behind the growth?

J.H: The biggest driver is digitalization in all parts of our society. Strong identification is required to secure information and ensure that the right person can access the right information. This development has meant that the demands on e-identifications have increased, such as identifying oneself in one's work role or handling people without personal identification numbers. Freja eID is unique in offering solutions to several of these challenges—and at the same time, with a governmental quality review.

Quote from the press release:

K.L: You announced a savings program last September where you aim to save around SEK 14 million annually. Can you tell us how the savings program is progressing and if it is on track?

J.H: Yes, it really is. We made a careful estimate of savings and costs, and we are in line with both.

K.L: A new law for e-identification is planned. For example, the state plans to introduce a type of digital ID. What does this mean for Freja?

J.H: The legislative proposal is very good news as it suggests that all approved e-identifications should be mandatory at all public and publicly funded e-services. Many of these already support the banks' e-identification, so we expect an increase in new services that support Freja. It is proposed to come into force at the beginning of 2026, but exact timelines and possible exemptions are still unknown. However, we already see that many public procurements include Freja as a requirement. Regarding the state e-identification, its future is still uncertain, but it could contribute to driving standardization issues.

K.L: How do you stand up to the competition with BankID, and what actually sets you apart from them?

J.H: There is a big misconception that Freja lacks a raison d'être just because there is a larger player on the market. BankID is an authentication solution for individuals who meet the requirements to have a bank account in Sweden. Freja, on the other hand, is an internationally scalable platform that offers a range of services, including identity management, data sharing, and e-service legitimization. The comparison between us and BankID is like comparing Amazon to a local bookstore. We face the challenge of changing the perception of what e-legitimization means and showing the potential in what we are building.

K.L: How does your monetization model work? Are you paid per usage, or does the model differ when you work with different clients, such as municipalities?

J.H: Our platform consists of various functions that we sell in the form of subscriptions, usually with a contract period of 2-3 years. The price depends on the number of users and is affected by the competitive situation. For example, for a municipality, the price is determined by the number of inhabitants and competition from bank solutions. When it comes to services for employees or other specific functions, the pricing varies further.

K.L: What is the market size for municipalities and why do they choose your service?

J.H: There are 290 municipalities in the municipal market, and more than half already use our citizen package. The market value is estimated to be between SEK 60-100 million per year, and this estimate does not include regions, authorities, public companies, etc. Municipalities choose us to offer an alternative to the banks' solutions and for our specialized services, such as service legitimization.

K.L: Do you see the potential for expansion into other sectors after establishing yourselves in the municipal sector?

J.H: Absolutely, all industries are undergoing a digitization process that requires secure login methods. This includes e-health, grocery trade, gaming, and fintech. ID is central to all these services. It's important to emphasize that we are not just a "municipal ID". Of the 355 subscription customers we wrote about on January 11 regarding Q4, less than half are municipalities, so we already have a broader customer base.

K.L: Given the tough competition, how do you view the potential for your service in the international market?

J.H: The market is valued today at between $30 and $80 billion by 2028. But these estimates can vary greatly. ID is a critical part of most digital services and protects personal privacy. We look forward to exploring new use cases and replacing fixed passwords. The competition isn't always that fierce, especially outside our neighboring countries where equivalents to BankID are rarely found.

K.L: Finally. You are a co-founder of the company, have been CEO since 2002, and are one of the company's largest shareholders. Why do you think one should invest in your company?

J.H: My starting point when we founded the company was that identities would be a key factor in the digitization we saw ahead of us. The development in recent years has confirmed this, while the requirements have increased from mere authentication to include more qualified information. Freja is perfectly positioned to solve today's and tomorrow's problems both in Sweden and internationally. The last few years have been about proving the platform in Sweden, which I think we have succeeded with. Now, it's about taking advantage of the demand both in Sweden and abroad.

Freja eID - Investment exposure to the digital ID market

Freja eID (FREJA) is a smaller technology company listed on the Nasdaq First North Premier Growth Market. They provide e-identification solutions to individuals, municipalities, and companies. The company has a market value of around SEK 163 million (as of February 21, 2024) with an ARR of just over SEK 20 million (Q4’23).

The reason we have taken an interest in Freja is that the company appears to be nearing profitability, has had positive operational cash flow for the past nine months, shows accelerating growth, and seems to benefit from a strong digitalization trend within identification. We will continue to monitor Freja and are excited to see their development.

TECH BRIEF

🔍 Tech Innovations - Meta, Adobe, and Apple are unveiling remarkable technological advancements, each enhancing digital interaction in unique ways. Meta's introduction of a neural wristband, set to release alongside Ray-Ban's third-generation smartglasses in 2025, promises precise finger tracking by detecting neural signals, making virtual interactions more intuitive. Adobe's AI Assistant for Acrobat PDF aims to simplify navigating large documents by summarizing content, answering queries, and providing recommendations, which are available in beta for Acrobat subscribers at no extra cost. Meanwhile, Apple's development of a smart ring indicates a growing interest in wearable technology.

🔍 Business Moves - Sequoia Capital halted efforts to remove Michael Moritz from Klarna's board, keeping a spot open and raising questions about Sequoia's initial intentions. Meanwhile, Evolution AB received clearance from the New Jersey Division of Gaming Enforcement after an investigation found no misconduct, leading to an enhancement of their compliance measures.

📉 Earnings and M&A - Amplitude's Q4 results led to a 7.6% stock decline, with revenues and future projections not fully meeting expectations despite customer growth and gross margin improvement. Concurrently, Walmart announced a $2.3 billion acquisition of Vizio, aiming to enhance its advertising business through Vizio's SmartCast system, following a significant rise in its ad sales.

STOCK IDEA - Shopify

Shopify (SHOP): Navigating Market Dynamics for Long-Term Growth

Ticker: SHOP | Price: 78$ | Timeframe: 12-24 months | Source: Seeking Alpha

🛒 E-Commerce | 🚀 Buy-Opportunity | 📈 Bullish idea

📝 Analysis: Dig deeper into this stock idea: Financials, valuation, moat analysis, timing, and more…