Should you sell your eGain stock?

On Nov. 6, Roth Capital Partners analyst Richard Baldry lowered his target on eGain  (eGain Corp. Stock Quote, Chart, News, Analysts, Financials NASDAQ:EGAN) to US$6.00 from US$7.00, saying declining revenue from older products and insufficient growth in its artificial intelligence business could put pressure on profitability through fiscal 2028.

Baldry maintained his “Neutral” rating on the California-based customer service software company, despite first-quarter fiscal 2027 results that exceeded expectations.

“Legacy churn remains a headwind, but the acceleration we had expected for AI-related revenues remains inadequate to date to offset legacy revenue losses,” Baldry said.

eGain reported quarterly revenue of US$21.9-million, down 7% year-over-year but ahead of Baldry’s US$21.1-million estimate. Revenue declined sequentially for the fourth consecutive quarter. Adjusted EBITDA reached US$2.7-million, exceeding his US$1.4-million forecast, as cost reductions helped offset weaker sales. Adjusted earnings were US$0.09 per share, compared with his US$0.06 estimate.

However, revenue from AI-related products increased only 7% year-over-year, insufficient to compensate for customer losses and the planned discontinuation of older products. Baldry expects revenue to continue declining until a seasonal recovery in the fourth quarter of fiscal 2027. “As EGAN still expects its entire legacy revenue base to trail off by F30, the lasting headwind ahead remains a concerning investor sentiment dampener in addition to being a revenue and earnings dampener,” he said.

The company is increasing spending on AI-related growth opportunities, which Baldry expects will sharply reduce profitability before new revenue can replace the declining legacy business.

The analyst forecasts Adjusted EBITDA will fall to approximately break-even in the fiscal second quarter before turning negative during the second half of fiscal 2027. “Given an outlook for steadily lower revenue and a path to eliminating its positive AEBITDA stance, we see few investor sentiment drivers near-term to warrant a return to a positive rating,” Baldry said.

He maintained his fiscal 2027 revenue forecast of US$85-million, down from US$91.1-million in fiscal 2026, while increasing his Adjusted EBITDA estimate to US$1.4-million from US$800,000. For fiscal 2028, Baldry expects revenue to recover to US$90.6-million, although he forecasts negative Adjusted EBITDA of US$1.5-million as higher spending continues.

“Our F28 model assumes AI growth strengthens enough to turn growth positive once again, but this outlook carries limited confidence,” he said.

Despite the difficult outlook, eGain’s balance sheet provides some financial flexibility. The company ended September with US$71.3-million in cash and no debt, having repurchased US$3.6-million of shares during the quarter. Approximately US$6-million remains authorized for additional buybacks.

“With few revenue and earnings catalysts seen near-term, continued buybacks seem a sound way to reward patient investors,” Baldry said.

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