BMO Nesbitt Burns analyst Thanos Moschopoulos thinks Coveo Solutions Inc. is “well-positioned” to take advantage of the accelerating use of generative artificial intelligence, believing “it might well drive an acceleration in revenue growth.”
“CVO sees GenAI as being a supplement to, rather than replacement for, classic search,” he said. “CVO believes search will represent 80-90 per cent of user queries, even as GenAI is more broadly adopted—partly due to user preference and partly because GenAI queries are currently an order of magnitude more expensive to process (meaning that enterprises will be mindful of how GenAI is used/deployed).”
“CVO’s role as the incumbent information retrieval platform for many large enterprises makes it well-positioned, in our view, to monetize GenAI. CVO believes that users will want to interact with a single search/prompt box that can power both search and GenAI, and that enterprises will want to ensure that common data is powering both search results and GenAI content, lest they provide conflicting information. Consequently, it makes sense for customers to turn to a single vendor for both search and GenAI.”
After hosting a discussion with the Montreal-based company on its own GenAI module, Mr. Moschopoulos said Coveo has signed up 45 beta customers, including Informatica, Synopsys, VMware, Xero and Zoom.
“These customers will be testing the module over the coming weeks, and a subset have already committed to fully deploying, and paying for, the solution (with typical pricing representing a 40-per-cent uplift to an existing CVO contract),” he said. “Initial use cases are primarily focused on Service and Workplace (i.e., customer service/support and corporate intranets), for which the ROI is perhaps most tangible. CVO is also developing GenAI capability for Commerce, for which a key use case might be helping consumers with product discovery.”
“While we’re not currently baking a GenAI uplift into our revenue forecasts, we believe that CVO’s GenAI offering has the potential to drive accelerated growth, perhaps starting next year. We also think that CVO’s quick turnaround time in developing, and starting to monetize, a GenAI module, speaks to the company’s agility and execution. These attributes have also been demonstrated by its consistent quarterly performance since IPO, and the fact that it’s been able to drive 19-per-cent-plus year-over-year constant currency SaaS revenue growth in each of the past three quarters while keeping its salary expense relatively flat year-over-year.
Maintaining an “outperform” rating for Coveo shares, Mr. Moschopoulos raised his target for its shares to $13.50, above the $12.90 average, from $12.