TSX:CVO - Post Discussion
Post by
retiredcf on Aug 11, 2024 1:48pm
RBC Report
Their upside scenario target is $14.00. GLTA
Outperform
TSX: CVO; CAD 5.85
Price Target CAD 11.00 ↓ 13.00
Coveo Solutions Inc Waiting for the re-acceleration
Our view: Coveo's Q1 was in line with RBC/consensus expectations and the company reaffirmed FY25 guidance. New pipeline growth is healthy and bookings improved sequentially, though ARR growth remains modest as elongated sales cycles persist. The high-end of reaffirmed FY25 guidance implies growth inflects in the second half of the year, which we believe will be a catalyst for the stock. Maintain Outperform, target moves from C $13.00 to C$11.00.
Key points:
• Q1 revenue in line with RBC/consensus. Q1 revenue was $32.2MM (6% Y/Y, 10% excluding Qubit), effectively in line with RBC/consensus of $32.1MM/$32.1MM. SaaS revenue was $30.6MM (12% Y/Y excluding Qubit), in line with RBC at $30.4MM (consensus at $31.1MM includes an outlier). On lower opex ($31MM vs. RBC at $33MM), adj. EPS was $0.00, exceeding RBC/consensus of -$0.02.
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Reaffirmed FY25 guidance implies a back-end loaded year. Coveo reiterated FY25 revenue guidance of $133-138MM and $126-130MM, along with FY25 adj. EBITDA guidance of $0-4MM. However, Q2 guidance for $32.0-32.4MM revenue and $30.6-31.0MM SaaS was below consensus ($33MM revenue) and RBC ($33.5MM revenue, $31.6MM SaaS). The implied re-acceleration in bookings and SaaS growth occurs later in the year than our expectations.
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GenAI pipeline grows, bookings increase sequentially. Coveo disclosed that Q1 bookings increased sequentially from Q4. GenAI accounted for 20% of Q1 bookings (vs. 20% Q4). Coveo has now signed over 30 GenAI deals and its GenAI pipeline increased by 2x Q/Q. Q1 was also the second best quarter for net new customer pipeline generation in Coveo's history. GenAI win rates are "extremely high" and it is seeing <10% of pipeline that is lost/de-qualified. Disclosed new wins include a "leading global manufacturer of GPUs", Trinity Life Sciences, a top 5 U.S. bank, and Thalia.
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Elongated sales cycles continue to restrain growth. Despite new customer wins, Q1 ARR rose only 12% Y/Y (similar to ex-Qubit SaaS revenue growth) and RPO was up only 3% Y/Y. Extensive testing and evaluation of GenAI is delaying the rate of conversion of Coveo's GenAI pipeline to wins. Management continues to expect an inflection in bookings 2H/FY25, given increasing customer references, successful trials, and sales execution (new CRO from Palo Alto, AWS). Following Q1, our financial estimates are largely unchanged.
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A GenAI beneficiary trading at 1.8x sales. Coveo is trading at 1.8x NTM EV/S, below peers at 7.5x. 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) improving cashflow. Our revised C$11.00 price target (C$13.00 prior) equates to 4.2x CY25e EV/S, down from 5.4x previously, given incrementally lower visibility to growth following Q2 guidance below our expectations.
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