Is Open Text a buy? (February, 2025)

Following the company’s most recent quarterly results, National Bank Financial analyst Richard Tse remains on the fence with Open Text (Open Text Stock Quote, Chart, News, Analysts, Financials NASDAQ:OTEX).

On February 6, OTEX reported its Q2, 2025 results. The company posted Adjusted EBITDA of $501-million on revenue of $1.36-billion, down 13.1% year-over-year.

“OpenText’s Q2 results demonstrate the strength of our operating model, delivering $501 million of adjusted EBITDA, and 37.6% adjusted EBITDA margin, and generating $307 million of Free Cash Flows (FCF). The Company’s top priorities remain total growth, competitive advantage, margin expansion and FCF, while producing upper quartile capital returns,” CEO Mark J. Barrenechea said.

Tse summarized the quarter.

“OpenText reported solid FQ2 (Dec.) results relative to expectations with meaningful outperformance on profitability,” he wrote. “On the positive front, Cloud revenue grew by 2.7% Y/Y (vs. our 1.7% forecast), building on FQ1’s 1.3% growth with an unchanged FY25 Cloud target that implies a growth ramp to ~4.9% in FH2’25 for OpenText to hit the midpoint of guidance. That said, OpenText revised down its FY25 revenue guidance by ~$130 mln care of continued product growth challenges particularly in ADM and ITOM ($70 mln), FX ($35 mln), and the discontinuation of a former agreement with a partner DXC ($25 mln). Additionally, while the Company’s Cloud revenue target was unchanged, its Cloud bookings growth target was revised down slightly. The offset, OpenText’s FCF outlook increased from efficiency gains. Bottom line, we continue to see a balanced risk-to-reward profile for OpenText.”

In a research update to clients February 7, Tse maintained his “Sector Perform” rating and price target of (US) $38.00 on OTEX, implying a return of 32.2% at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $1.77-billion on revenue of $5.20-billion in fiscal 2025. He expects those numbers will improve to Adjusted EBITDA of $1.92-billion on a topline of $5.33-billion in fiscal 2026.