On Friday, Canaccord Genuity adjusted its outlook on Accolade Inc. (NASDAQ:ACCD), reducing the stock's price target to $13 from the previous $16 while still maintaining a Buy rating. The adjustment followed Accolade's second-quarter fiscal year 2025 (2QFY'25) guidance and full-year revenue forecast, which fell short of expectations. Despite this, the adjusted EBITDA target remains unchanged at $15-$20 million.
Accolade's management has opted to lower usage-based revenue projections that would require significant marketing expenditures, aiming to prioritize profitability. This strategic shift was influenced by three main factors: a scaled-back growth forecast for its direct-to-consumer PlushCare service, a rebalancing of growth investments across various services, and a decision not to pursue aggressively priced advocacy business. The first two reasons were cited as the primary drivers behind the revised guidance.
The updated guidance also comes in the wake of Included Health being chosen over Accolade and Quantum (NASDAQ:QMCO) by Calpers, which may suggest an increasingly competitive market. However, Accolade's management has expressed confidence in the strength of its advocacy pipeline and the stability of its revenue retention and bookings targets.
Canaccord's analysis suggests that Accolade's conservative revenue targets are a strategic move to ensure the attainment of its adjusted EBITDA goals without incurring excessive costs. This approach is seen as a measure to establish a more sustainable business model in the long term, despite the potential for near-term challenges. The firm anticipates that Accolade's stock may not see significant movement until the company reports its third-quarter results and hosts an analyst day later in the year.
In other recent news, Accolade Inc. reported an 18% year-over-year revenue growth for the first quarter of fiscal year 2025, totaling $110.5 million. In response to a challenging economic climate, the company revised its full-year revenue outlook down to between $460 million and $475 million, indicating a growth of 11% to 15%. This decision was part of a strategic move to ensure profitability, resulting in a cutback on marketing investments that were initially expected to drive growth.
Despite these adjustments, Needham, Truist Securities, and DA Davidson analysts continue to maintain a positive outlook on Accolade's stock. Needham and Truist Securities maintain a 'Buy' rating, while DA Davidson holds a 'Neutral' rating. These ratings come after the analysts revised their price targets for Accolade, with Needham adjusting to $8, Truist to $9, and DA Davidson to $5.
In line with these developments, Accolade's EBITDA outlook for FY25 remains positive, ranging from $15 million to $20 million, underlining the company's commitment to financial stability. However, Accolade's long-term revenue goal of $1 billion has been postponed by approximately one year.
InvestingPro Insights
Following Canaccord Genuity's recent price target adjustment for Accolade Inc. (NASDAQ:ACCD), InvestingPro data provides additional context for investors considering the stock. Accolade's market capitalization stands at $511.25 million, reflecting investor sentiment and the scale of the company within its sector. Despite a challenging forecast, the company's gross profit margin remains robust at 46.52% over the last twelve months as of Q4 2024, indicating a strong ability to retain earnings before operational costs and taxes.
InvestingPro Tips suggest that while Accolade's stock price has been quite volatile with a significant drop of 39.03% over the last three months, the company has liquid assets that exceed its short-term obligations, which could provide some financial stability. However, analysts are not expecting the company to be profitable this year, which aligns with the negative P/E ratio of -4.77. For investors looking to delve deeper into Accolade's financial health and future prospects, there are additional InvestingPro Tips available, providing a comprehensive analysis of the company's performance and potential. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 6 additional tips listed on InvestingPro that could inform your investment strategy.
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