In addition to Carnegie lowering its price target, JPM has significantly increased its short position in recent days.
I was, honestly, disappointed with the Q3 ARR figures after all the talk about sales development/pipeline throughout the beginning of the year. As a result, I decided to sell my shares on earnings day, at least for now, until we see some signs of accelerated growth in line with strategic targets (this also resulted in a significant loss). That being said, Pexip is still a strongly growing company with a quality product, but growth has not been in line with the set targets and discussions, which has significantly reduced confidence in the company’s management.
The share price has now been driven so low that, in my opinion, the company could even significantly miss its 2024 ARR targets and the expected return would still be reasonable. However, at the moment, I don’t see any catalyst before the Q4 ARR figures that could turn the stock’s direction. I will be following the company from the sidelines and am ready to jump back in after stronger Q4 figures. I feel that Pexip has found its position in the market and that there will be demand for their products in the coming years - so I don’t see the long-term growth story as destroyed.
Well sniffed out. The going has been brutal in recent weeks (-42% in a month!), but the decreased valuation level gives reason to pull out the calculator and assess the situation. The earnings release is on the 11th of this month, and management had best be able to show how increased sales efforts will be reflected on the bottom line.
Thanks already to @naata and @bein for the analyses in this thread, even though the stock hasn’t brought much joy so far. It has been a pleasure to follow a thread where the level has remained high!
Yes, that does bring a small glimmer of light to an otherwise gloomy market sentiment. These latest purchases were also made with a larger volume relative to previous insider purchases.
The current share price of ~44 NOK already prices in a SIGNIFICANT slowdown in growth for the coming years. Below is an illustration of ARR-based pricing in bull and bear scenarios. In the bear scenario, the growth during the strategy period (CAGR) remains at 25%, while in the bull scenario, the target of 300 USD ARR is reached in 2024 with a CAGR of 40%. From the bear scenario image on the left, we can see that the 2023E EV/S already drops to 2.7, which is a really low valuation for a strongly growing SaaS company. With that growth rate, the company would already miss the growth targets for the strategy period by almost 100 million dollars, which would be a really bad crash for the company, considering that management has still communicated that the 2024 targets are achievable. I personally expect some sign of growth picking up before I jump back in.
Possible catalysts for a share price increase in the next couple of months:
By the way, the Q3 presentation showed a rather interesting slide about the efficiency of sales personnel in relation to the timing of recruitment. The ramp-up of new salespeople has apparently been slightly slower than what the company itself expected.
60% of the salespeople would still be in the ramp-up phase, and based on the picture, it would seem to take well over a year to reach full speed. This assumes that salespersons of average equal effectiveness are recruited during each quarter.
Pexip did indeed hold a capital markets day yesterday. In my opinion, the presentation didn’t offer any surprises (positive or negative), but a couple of points from the presentation could be highlighted:
More detailed information on Churn. The company’s key segments have significantly lower churn than other customer accounts (fourth row in the table). As growth in key segments is considerably stronger than in other areas, it can be assumed that churn will gradually start to decrease towards the 5% level. I’m already eagerly awaiting the figures for the next quarter.
The company reiterated its growth target for 2024.
“We have a strong underlying performance in our core focus areas, which are already accounting for more than 85% of ARR. These areas have also higher average revenue per customer and lower than average churn. Pexip has a long track-record and a proven culture of execution. With our unique technology and team in place, we are on-track to reach our target of 300 million dollars in ARR by the end of 2024”.
The company specified the size of its targeted “Core” market, which is divided into three different themes.
“Pexip’s strategy is to focus on three core areas: Video infrastructure, Critical video meetings, and Video enablement. These segments of the video market have an an estimated value of USD 5 billion in 2024, and Pexip is aiming to gain a leadership position in each segment.”
I guess it’s time to start trying on my buying pants as the next earnings report approaches. If ARR growth and churn start to recover, there’s certainly a lot of upside in the short term. This is a typical high-growth case, where a few percentage point changes in growth expectations already significantly affect the stock’s valuation.
Q4 ARR figures will be published on Monday and Pexip will also hold a short conference call first thing in the morning. The company has not held a conference call in conjunction with the release of ARR figures before, which could mean they have something important to say. Could a new CEO have already been found?
Meanwhile, the share price has continued to stagnate - could this be the quarter when the trend starts to turn?
Now would be the time to show some results! The new sales team has been with the company for a while now, and results should slowly start coming in; otherwise, those 300MUSD ARR (Annual Recurring Revenue) will remain post-2025.
I also noticed that a conference call is now being offered, but I wonder if it’s just a “non-event” related to sharpening investor communications. Or maybe there’s a need to explain the numbers. That was feared with the second portfolio bomb, i.e., Lion-e mobility, when they moved it a week before the earnings report to be closer to the previously announced investor call, but no real drama ensued… A new CEO should really be found soon; a growth company of this size shouldn’t be run with an interim lead for too long, if you ask me.
Pareto expected new sales of 5.5MUSD, which is a 23% growth from a year ago (from last week’s releases). Now we got 6.6MUSD / 30% increase, which is a clear beat. Was there information on other analyst forecasts?
“We are confident that executing on this renewed focus and capitalizing on the growth investments made in 2020 and 2021 will enable us to deliver on our ambitions to return to positive EBITDA during 2023 and reach USD 300 million in ARR by the end of 2024,” said Interim CEO and CFO, Øystein Hem.
We are behind schedule and under close observation in relation to the target. Some assistance can be obtained by acquiring smaller players, but with organic growth, investments must start showing results quickly so that the lag does not become too large. 12 quarters and we will be at the end of 2024.
If I’m not calculating completely wrong, 106 * (1.09^12) = approx. 300 MUSD, meaning ARR should grow by 9% per quarter to achieve the target. Not impossible, but my gut feeling is that the next couple of quarters will show how realistic the target is. If sales don’t pick up, headcount will be reduced, and the cost level will decrease.
The market does not seem to strongly believe the management’s story. I’m trying on my buying pants, but I probably need to eat more (or buy suspenders) as they don’t stay on yet
Well, the new sales guns haven’t really shined yet… At least it’s good that net retention doesn’t seem to be declining anymore. It will be a tight squeeze to reach 300M USD; they’d need to achieve an immediate +50% absolute USD-denominated growth, and then even more later on.
Market confidence is indeed quite low, EV/ARR or sales aren’t exactly impressive anymore. One could certainly imagine that Pexip might end up being the small player that eventually beautifies someone else’s growth figures…
Pexip’s subscription base measured in ARR reached USD 105.6 million in Q1 2022, up from USD 87.2 million in Q1 2021, representing a year-on-year increase of 21% or USD 18.4 million.
Growth from new customers accounts for USD 23 million over the last twelve months, representing 26% growth. Net revenue retention rate, reflecting the percent of retained revenue from existing customers, was 95% year-on-year, including churn of 9.2% year-on-year. The reduction in net revenue retention rate was driven by a decline in net upsell, which was at USD 3.4 million in Q1 2022.
A change in pricing model with a strategic partner led to a USD 2.0 million reduction in Q1 ARR. Pexip expects this change to drive a positive effect during the rest of 2022 of more than USD 4 million.
Adjusted for the partner pricing model change the underlying new ARR from normal business was USD 1.2 million in Q1 2022. Including this change, the quarterly change in ARR was negative USD 0.8 million in Q1 2022.
ARR from Pexip’s Self hosted Software reached USD 59.4 million in Q1 2022, up 15% year-on-year, while ARR from Pexip as-a-Service reached USD 46.2 million, up 30% year-on-year.
Continued growth in Video enablement and Critical video meetings, which grew 37% and 106% year-on-year respectively. These two areas increased their ARR by USD 2.3 million in Q1 2022.
Pexip will adapt its growth strategy to reduced visibility on quarterly timing of ARR growth, and target being EBITDA profitable in Q4 2022 and for the whole year of 2023.
Yeah, now growth stopped last quarter, and talk of updating the growth strategy and profitability began.
For comfort, Peter Lynch’s video comes to mind: a company without debt won’t easily go bankrupt…
What an apathetic start to the year! The “re-evaluation” of the growth strategy, or in other words, profitable growth instead of a vigorous, front-loaded growth surge, is not a surprise. Although growth is still promised from Q2 onwards, it is clear that the target reiterated in December (revenue of 300 MUSD by 2024) will not be met.
Pareto’s comment mentioned Cisco’s revitalization as one reason for the weak performance. This could explain the negative turn in American growth. In any case, it’s concerning when you’re on a collision course with such a big player and its cash (read: predatory pricing).
Target price updates, quite a spread:
Arctic, 65 → 60 NOK (buy)
Pareto, 70 → 26 NOK (hold)
Pareto’s comment, translated from Avanza’s pages, describes Pexip’s dilemma well - when it’s not growing and cash is leaking, the story of a growth stock turning into a bad value stock hurts the target price.
Pareto remains positive to Pexip in the long term but thinks that the low multiple of 2 times EV / ARR is reasonably given the combination of low growth and negative cash flows. Pexip is also described as being an interesting buying candidate in a market that has high acquisition activity.
Pexip finally got a new CEO. The previous interim CEO continues as CFO. The share price did not pick up after the appointment; today, the lowest stock market price in its history was recorded. Since the beginning of the year, it has come down almost 50%.
A significant part of the market value is cash or otherwise liquid assets, so if that comforts the shareholder, the same halving pace cannot continue!
It’s time for the new CEO to prove himself. How will the liquid capital be used? Will own shares be bought? Will collective redundancies be implemented, or will complementary technologies be acquired?
Mr. Johannessen comes to Pexip from the Embron Group and has 25 years of experience managing global business development, mainly in business-to-business sectors, as well as having a consultancy background from McKinsey & Co. He also has extensive board experience and is currently the Chair of Webstep ASA, a publicly listed IT consultancy
Q2 report published. The strong SaaS growth in the headline seems to be drifting further away. Q1 vs Q2 brought no growth, and year-over-year growth was only 10%. Preliminary estimates suggest Q2 vs Q3 will also bring no growth.
This guess was accurate. The number of employees has decreased by 100 in a year. If just over a year ago the magic word was bold growth ambition, now the emphasis is on how quickly cash burn can be brought under control. Currently, 2023 is even expected to be a cash-positive year.
This was wrong. Compared to the time of writing, the share price has almost halved and is already approaching single digits. Almost half of the market value is cash.
Despite this, the temptation to buy the stock is not great. No growth or revenue loss and potential additional savings (which incur additional costs) sound like the sound of a falling knife to my ears. Perhaps a larger player will acquire the company, but then we’re talking about lottery odds.
