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One of Wall Street’s most famous investors is Cathie Wood, whose portfolio of growth-focused ETFs or exchange traded funds gained massive traction in the last few years. But several of these ETFs are down 15% to 20% from all-time highs due to the sell-off in growth stocks. But it makes sense to follow Wood’s equity transactions and analyze recent purchases. One tech stock that was scooped up by Wood’s investment team this month was LivePerson (NASDAQ: LPSN).
A company valued at a market cap of $3.9 billion, LivePerson provides conversational commerce solutions. It has two primary business segments that include Business and Consumer. The Business segment allows brands to leverage the LiveEngage intelligence platform to connect with customers via an integrated suite of mobile and online messaging technologies. The Consumer segment facilitates online transactions between mobile and online messaging.
LivePerson also offers an enterprise-facing cloud-based platform that enables businesses and consumers to connect through conversational interfaces including in-app and mobile messaging.
LivePerson all set to experience top-line growth in 2021 and beyond
The online chat support solutions company saw its revenue decline by 6.8% year over year in 2016 and by another 1.9% in 2017. However, sales rose by 14.1% in 2018 to $250 million, 16.7% to $291.6 million in 2019 and 25.7% to $366.6 million in 2020. In the first six months of 2021, LivePerson’s sales rose by 34.1% year over year.
The stock has already gained 544% in market value in the last five years, but is also down 24% from all-time highs, allowing you to buy the dip.
In the second quarter of 2021, LivePerson reported revenue of $119.6 million which was 31% higher compared to the year-ago period. Its business operations sales were up 31% at $109.8 million while consumer operations sales rose 29% to $9.8 million.
The company signed four deals over $1 million and 105 deals in total in Q2. This includes 29 new and 76 existing customer contracts. LivePerson explained, “Trailing-twelve-months average revenue per enterprise and mid-market customer increased 35% in the second quarter to another record high of $535,000, up from approximately $395,000 in the comparable prior-year period.”
What next for LPSN stock?
The company’s management remains optimistic about long-term growth driven by accelerating demand for conversational AI. As brands are turning to AI and messaging to communicate and engage with consumers, LPSN continues to invest in product development to include new verticals such as healthcare and cryptocurrency, thereby expanding its total addressable market.
LivePerson increased its sales by at least 25% for the fifth consecutive quarter in Q2 and expects revenue growth in 2022 to remain over 27% year over year.
Similar to most other growth stocks, LivePerson is also sacrificing profit margins for top-line growth. In Q2, it reported a net loss of $21.1 million or $0.31 per share compared to a loss of $18.6 million or $0.28 per share in the year ago period.
But its adjusted operating income rose to $6.4 million from $3.5 million while adjusted EBITDA rose from $9.3 million to $13.4 million in this period.
Analysts tracking the stock expect sales to rise to $469 million in 2021 and to $592 million in 2022, valuing LPSN stock at a forward price to 2022 sales multiple of 6.43x which is steep.
The verdict
LivePerson is a growth stock that’s trading at a premium. It ended the second quarter with $664 million in cash and $570 million in debt which provides the company with enough liquidity to tide over the near-term headwinds and negative profit margins.
LPSN is a mid-cap stock that is well poised to stage a rebound in the future, especially if it can narrow its losses and race towards profitability.
Related: Why This Tech Company Is Part of Cathie Wood’s Portfolio
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