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Introduction & Market Context
Sleep Cycle AB (SLEEP) presented its Q1 2025 interim report on April 25, 2025, revealing modest growth in a challenging macroeconomic environment. Despite reporting increased revenue and maintaining strong profitability, the company’s stock tumbled 16.87% to SEK 34.0, approaching its 52-week low of SEK 32.3. The significant market reaction suggests investors remain concerned about the company’s growth trajectory despite management’s confident outlook.
The sleep technology company, which bills itself as the "World’s No. 1 Sleep App," acknowledged macroeconomic pressures while emphasizing its resilience and continued market share gains. CEO Erik Jivmark presented the company’s performance alongside CFO Elisabeth Hedman, highlighting both current results and strategic initiatives aimed at future growth.
Quarterly Performance Highlights
Sleep Cycle reported modest growth across key metrics for Q1 2025. The company achieved a 2.3% year-over-year increase in net revenue to SEK 64.9 million, while subscriptions grew 1.2% to 904,000. However, Average Revenue Per User (ARPU) declined slightly by 1.5% to SEK 272.
As shown in the following financial summary:
The company maintained strong profitability with an EBIT of SEK 17.1 million, representing a 26.3% margin. This demonstrates Sleep Cycle’s ability to generate substantial profits despite challenging market conditions and increased investments in marketing and new revenue streams.
The subscription and revenue trends over time reveal a company experiencing steady but slowing growth compared to previous years:
Detailed Financial Analysis
Sleep Cycle’s profitability remains a bright spot in its financial performance. The company has maintained an adjusted EBIT margin above 25% for five consecutive quarters, though the Q1 2025 margin decreased compared to previous periods due to higher marketing costs and investments in new revenue streams.
The following chart illustrates the company’s EBIT performance over time:
A detailed breakdown of the quarterly financials shows that while revenue increased by 2.3%, the company achieved a significant 25% reduction in staff costs compared to Q1 2024. This restructuring helped maintain strong profitability despite increased marketing expenditures. The company ended the quarter with a robust liquidity position of SEK 157.1 million, even after announcing a dividend of SEK 61 million to be paid in Q2 2025.
Strategic Initiatives
Sleep Cycle is actively pursuing several strategic initiatives to drive future growth. A key focus is the development of a Sleep Apnea Screener, addressing a significant global health issue that affects approximately 950 million people aged 30-69 worldwide, with an estimated 80% remaining undiagnosed.
As shown in the company’s presentation of this opportunity:
The company is also enhancing its technology platform capabilities, emphasizing personalized sleep insights, health data streams, and seamless integration options through its SDK. These initiatives aim to expand Sleep Cycle’s market reach and create new revenue streams beyond its core consumer app.
Management highlighted partnerships with Wellhub (renewed contract) and Revolut as part of its strategy to expand distribution channels. The company is also focusing on improving user retention through win-back strategies, tactical campaigns targeting free users, and enhanced data reliability with the release of Sleep Staging.
Forward-Looking Statements
Despite the challenging market environment, Sleep Cycle’s management maintained a confident outlook, emphasizing that the company’s strategy and financial targets remain firm. Key takeaways from the presentation included positioning Sleep Cycle as a stable company in volatile times, focusing on creating upper funnel control, and developing new initiatives with "great potential" for 2025.
However, investors appear skeptical about the company’s growth prospects, as evidenced by the significant stock price decline following the earnings release. The disconnect between management’s optimistic outlook and market reaction suggests concerns about the company’s ability to accelerate growth in an increasingly competitive landscape.
The company’s focus on sleep apnea screening represents a potential new growth avenue, though management acknowledged that no revenue from this initiative is expected in 2025. This long-term approach, while strategically sound, may not satisfy investors looking for more immediate growth catalysts.
Sleep Cycle faces the challenge of balancing profitability with investments needed to drive future growth. While the company maintains strong margins and a solid cash position, the modest subscriber and revenue growth rates suggest it may need to increase marketing spend or accelerate new product development to reignite momentum in an increasingly saturated market.
Full presentation:
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