Freedom maintains an $11 target on Butterfly Network after a strong quarter

Expanding its partner business is helping Butterfly Network (NYSE: BFLY) grow revenue and narrow losses, according to Freedom Broker analysts Ilya Zubkov and Arailym Kanatkyzy. Following the Q3 results, the experts reiterated their “Buy” rating and $11 target price.

Butterfly Network develops portable ultrasound scanners, software, and artificial intelligence tools for medical diagnostics. Through its Embedded segment, the company also provides partners with access to its ultrasound-on-a-semiconductor-chip technology and participates in joint development projects.

Revenue beat the top end of the guidance range

In Q3 2026, Butterfly Network’s revenue rose 52% year over year to $32.6 million. This was 16% above Freedom’s forecast and about 9% higher than the top end of the range set by management.

The main support came from the Embedded segment: its revenue reached $11.1 million, or about one-third of the total. In addition to cooperation with Midjourney, the company generated income from licensing and co-development with Merge Labs and Bridge Neurotech.

In its quarterly update Butterfly also noted that Mendaera became the first partner to launch a commercial product based on its technology. 

Partnerships expand the technology’s use cases

Freedom believes Embedded is gradually becoming an independent growth driver that is no longer limited to payments from a single customer.

For example, the agreement with Bridge Neurotech предусматривает licensing the technology for research into a non-surgical brain-computer interface. It includes payments for access to the technology, development milestones, and equipment purchase commitments. 

At the same time, the analysts do not consider the current $11 million a sustainable quarterly level. Engineering revenue may decline as individual projects are completed. Larger-scale chip shipments and royalty payments depend on partners’ commercial launches.

Profitability hit a record, but the company remains loss-making

Butterfly Network’s gross margin was 73%. By Freedom’s estimates, excluding a one-off effect from the refund of import duties, the figure would have been around 71%.

The adjusted EBITDA loss narrowed to $1.2 million versus $8.1 million a year earlier. This was significantly better than Freedom’s expectations and management’s guidance. At the same time, net loss was $12.8 million, or $0.05 per share: the result continued to be impacted by stock-based compensation and other expenses. 

The quarter’s cash burn slowed to $2.4 million. At the end of September, the company had $122.3 million in cash and cash equivalents.

The core business is growing moderately

Revenue in the core Core segment increased 5% year over year to $21.5 million. Growth was supported by U.S. healthcare organizations, educational institutions, and other corporate customers.

International sales, meanwhile, fell 5% to $5.1 million. Overseas distributors continue to reduce inventories, and some deals are being pushed back to later dates. Therefore, Freedom expects the international business to recover in 2027.

Earlier, Freedom Broker discussed the development of Butterfly’s portable ultrasound scanner sales, including the launch of iQ3 and the use of the devices for training healthcare professionals. Now an additional growth driver is providing the technology to third-party developers. 

What could affect the valuation going forward

Butterfly raised its full-year revenue guidance to $123–126 million and improved its adjusted EBITDA loss forecast to $12–15 million. BFLY 8-K Filing

Freedom considers management’s Embedded assumptions conservative and allows for further upward revisions to expectations by the January update at the J.P. Morgan conference. However, this will depend on receipts under partnership agreements.

Among the risks, the analysts highlight the uneven nature of such revenue, weakness in international sales, and a possible increase in the number of shares under a capital-raising program of up to $150 million. The “Buy” rating and $11 target price are maintained.

This is not an individual investment recommendation.