Coveo Solutions Inc.
(CVO-T) C$11.21
Q1/F24 Preview: Focusing on the GenAI Opportunity
Event
Q1/F24 Results: Tuesday, August 8, 2023, after market close. Conference Call: 5:00 p.m. ET (Webcast: Link; Dial-in: 1-888-664-6392).Impact: NEUTRAL
Superior execution expected to continue. We are forecasting Q1/F24 revenue of $30.3mm, in line with consensus at $30.2mm and guidance of $29.9mm-$30.4mm, with SaaS subscription revenue of $28.2mm, up 17.5% y/y organically. Coveo is facing some continued headwinds (macro and stronger U.S. dollar) and new ones (expected Qubit-related churn). Our Adjusted Operating Loss estimate of $4.6mm is modestly below consensus at $4.2mm, but in line with guidance of $4.0mm-$5.0mm. We believe Coveo can continue its post-IPO streak of meeting/beating consensus/ guidance, aided by its strong execution, including on the cost-optimization front that has led to some large Adjusted Operating Loss beats and better-than-expected guidance.
GenAI could deliver upside to F2024 guidance. F2024 guidance could be conservative, as it does not include any contribution from Coveo's new GenAI solutions that are expected to start generating revenue in H2/F24. We look to get more details on these new GenAI solutions, including the potential revenue impact, as Coveo has offered an "aggressive early pricing offer" for Service customers who become early adopters of its Coveo Relevance Generative Answering (CRGA) capability (need to enroll by the end of July).
Share price surging post-SIB, but still trading at a discount, with catalysts ahead. The stock is up 38% since the announcement of the preliminary SIB results just three weeks ago, raising the bar for the upcoming Q1/F24 release. We believe a miss and/or disappointing guidance/news/commentary could lead to a significant pullback in the stock. That said, despite the surge, the stock is still trading at an ~30% discount to its data analytics/search peers. Key upcoming catalysts include its quarterly results, especially if Coveo quantifies its GenAI opportunity (including any upward revisions to F2024 guidance), as well as M&A (Coveo has spent ~$0.4mm in transaction-related expenses in the last two quarters). Coveo may also deploy its excess cash to continue buying back its stock under its NCIB.
TD Investment Conclusion
We are maintaining our C$13.00 target price, which is based on 6.0x our C2024 revenue estimate.