Coveo Solutions Inc T.CVO

Alternate Symbol(s): CVOSF

Technology Software - Application

Coveo Solutions Inc. is Canada-based company. Its software-as-a-Service (SaaS) artificial intelligence (AI) platform and suite of AI and generative AI models are designed to transform digital experiences across commerce, service, website, and workplace applications. Its AI platform connects to internal sources of content along with a variety of external sources to retrieve and index structured and unstructured content and combines this content with click-stream events and behavior patterns. The platform helps to determine what users are looking for in real-time, and learns which content delivers optimal outcomes based on a deep understanding of what worked best for others. As more data accumulates, the platform learns to better predict each user's needs, and then automatically recommends personalized content. Its Coveo Relevance Generative Answering capability integrates LLM technology with its platform to feed generative AI with a common, secured unified index and real-time content.

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Post by retiredcfon Feb 08, 2024 10:34am

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Post# 35869801

RBC

February 8, 2024

Coveo Solutions Inc
On the road with management

Our view: We hosted investor meetings with Coveo’s Chief Business Officer, Nicholas Goode, and Head of IR, Paul Moon. The meetings increase our confidence that Coveo is likely to see sustained strong bookings momentum over the coming quarters, despite macro headwinds, which is likely to translate into stronger SaaS growth 2H/FY25. We believe high- profile customer wins and re-accelerating growth would lead to an upward valuation re-rating of the stock. Maintain Outperform, C$15.00 price target.

Key points:

• GenAI appears likely to drive an inflection in growth. The magnitude of the upswing in bookings Q3/FY24 (highest in two years) appears to have surprised management, as the company raised FY24 revenue guidance just one quarter after lowering it due to macro headwinds. We believe Coveo's bookings momentum is likely to continue to rebound as: 1) the company sells its GenAI offering into its install base; 2) its partnership with SAP ramps; and 3) new customer interest rises as a result of increasing awareness for Coveo's GenAI offering.

First mover advantage. In only two quarters since the beta of its GenAI offering in June (generally available in December), Coveo has signed more than 10 enterprise GenAI deals, with 4 already live. Early feedback is positive, as customer Xero disclosed 20% additional case deflection and 40% reduction in customer search time. Coveo indicated its GenAI offering is outperforming competitors (primarily homegrown, platforms) during customer testing. Coveo's fundamental competitive advantage is the accuracy and relevancy of its enterprise search technology.
GenAI flywheel. Coveo has experienced solid pipeline growth over the last several quarters. As more customers go live with Coveo’s GenAI, we believe sales cycles may shorten and conversion rates may increase, improving bookings momentum. While service is the primary GenAI use case, commerce is an emerging opportunity. The company is already testing its follow-up question feature, which further improves functionality and may allow Coveo to encroach on the chatbot market.
Increased investments, SaaS growth rebound appear likely 2H/FY25. In light of the GenAI growth opportunity, Coveo is planning to increase new sales investments, but is still targeting slightly positive cashflow in FY25. Due to one-time legacy Qubit churn and the ratable nature of SaaS revenue, SaaS growth is likely to remain depressed 1H/FY25, but then ramp 2H/FY25. Our estimates call for SaaS revenue growth to increase from 16% 1H/FY25 to 25% 2H/FY25. Management appears to be open to disclosing other metrics to help investors quantify the company's growth momentum.
A GenAI beneficiary trading at 5.3x sales. Despite the rally since Q3 results, Coveo is only trading at 5.3x NTM EV/S, below peers at 11x. We believe catalysts for valuation multiple expansion are: 1) re-accelerating RPO and SaaS growth; 2) visibility regarding new high-profile GenAI customer wins; and 3) sustained positive cashflow. Our C$15.00 price target equates to 5.8x CY25e EV/S.