Coveo Solutions Inc.
(CVO-T) C$9.98
Q3/F24: Low Bar Cleared with Beat and Raise
Event
Yesterday, after market close, Coveo reported its Q3/F24 results.
Impact: POSITIVE
Q3/F24 results beat. Q3/F24 revenue of $31.8mm and SaaS subscription revenue
of $29.9mm were slightly ahead of expectations/guidance. SaaS subscription
revenue grew 13% y/y (~18% excluding expected Qubit churn). Adjusted Operating
Loss of $1.7mm again handily beat expectations/guidance and is down sharply from
$3.9mm last year, driven by continued cost-optimization work/efficiency gains.
Positive revisions to F2024 guidance. Q4/F24 total/SaaS subscription revenue
guidance was slightly better than expected, which, combined with the Q3/F24 beat,
led to a slight increase in F2024 guidance. Q4/F24 SaaS subscription revenue
guidance implies growth in line with Q3/F24 levels. However, we expect revenue
growth to begin reaccelerating in Q1/F25, aided by strong bookings this quarter (best
since F2022), including Coveo's largest new customer win to-date with a global auto
company for its Commerce solution (almost $1mm). Meanwhile, Q4/F24 Adjusted
Operating Loss guidance was ~20% better than expected, in line with the ~20%
reduction in F2024 Adjusted Operating Loss guidance.
A solid start for CRGA. Coveo has been closing CRGA transactions at an
accelerating rate, with use cases across all four LoBs and ~20% of bookings
from CRGA this quarter. Key customer wins include SAP Concur, Blackbaud,
and two financial services companies with >$10trn in global AUM using CRGA
for Workplace, with one also using it for Website. Most of the CRGA pipeline
are existing customers (>50 active opportunities), but Coveo is also seeing solid
interest from new customers, given CRGA's competitive strength and high ROI. For
example, CRGA has delivered ~40% reduction in customer search time and ~20%
improvement in case-deflection rates above existing gains using its core relevance
platform.
TD Investment Conclusion
We are increasing our target price to C$15.00 (from C$13.50), based on 6.0x
(down from 6.5x previously) our C2025 (C2024 previously) revenue forecast.
Although Coveo's shares have rebounded strongly from recent lows, they are still
down from the Q2/F24 report last November, despite the tech-led market rally. Aided
by the Q3/F24 beat/guidance raise, increasing CRGA momentum, and its discount
valuation, we still see solid upside to the stock.