CVO price target chopped at National Bank

Following the company’s fourth quarter results, National Bank Financials analyst Richard Tse has cut his price target on Coveo Solutions (Coveo Solutions Stock Quote, Chart, News, Analysts, Financials TSX:CVO).

On June 3, CVO reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted Adjusted EBITDA of $200,000 on revenue of $32.6-million, a topline that was up 12% year-over-year.

“Our fiscal year 2024 has been transformative for Coveo and our industry. Enterprises worldwide are realizing that AI can create remarkable digital experiences for their customers and employees, leading to significantly improved business outcomes. With over a decade of AI experience with major clients, Coveo is well positioned to help leading brands capture this opportunity,” said Louis Tetu, chairman and chief executive officer of Coveo. “Last year, we said that we would be ‘last to hype, first to results,’ and we are proud to be among the companies that have already enabled large enterprises to achieve global live production deployments of generative AI, demonstrating tangible results and significant benefits to their businesses.”

Tse says the results were in-line with his expectations, but guidance was weak.

“Consistent with our quarterly preview, Coveo reported in-line FQ4 results with revenue of $32.6 mln (vs. NBF at $32.6 mln) and Adj. EBITDA of +$0.2 mln (vs NBF at +$0.2 mln); +0.6% margin. Notably, this was Coveo’s first quarter as
a public Company with breakeven or better Adj. EBITDA given efficiency efforts taken over the past 12 months,” he wrote. “With respect to the notable KPIs, they were mixed — SaaS Subscription Revenue was up 13% Y/Y (+18% Y/Y ex. planned Qubit churn) to $30.7 mln, cRPO was down 0.8% Y/Y largely due to Qubit churn and a Net Expansion Rate (NER) of 107% (Coveo Core Platform), within the Company’s target range of 105%-115% and up from 105% in FQ3’24. Perhaps most notable was the Company’s comments for continuing pipeline momentum where Coveo’s Generative Answering product drove >20% of bookings in the quarter with more than 75 generative AI projects in various stages of customer evaluations. The challenge was guidance where FQ1 and F25 came in below expectations given a combination of macro and market (AI) for enterprise. Coveo’s guidance implies revenue growth of approximately 5% Y/Y and 8% Y/Y with Adj. EBITDA margins of -7.7% and +1.5% (at the midpoints), respectively. On a positive note, the Company expects to generate ~$10 mln in cash flow from operations in FY25.”

In a research update to clients June 4, Tse maintained his “Outperform” rating on CVO, but lowered his price target on the stock from $14.00 to $10.00, implying a return of 36.2%.

The analyst thinks the company will generate Adjusted EBITDA of $800,000 on revenue of $136.1-million in fiscal 2025. He expects those numbers will improve to Adjusted EBITDA of $9.9-million on a topline of $155.4-million in fiscal 2026.

“Bottom line, while we expect a pullback in the name off the back of guidance, Coveo remains one of the few direct plays on AI in our coverage universe,” Tse concluded. “We believe the Company’s record pipeline should convert into accelerating bookings through F25. That said, we are revising our target price to C$10 (was C$14) to reflect a heightened risk profile from elongated sales cycles from the combined macro backdrop and elongated purchasing decisions given the early stage technology which is extending prospect evaluation times.”