On Tuesday, Goldman Sachs adjusted its price target for E2open Parent Holdings (NYSE: ETWO) shares, raising it to $4.50 from the previous $4.00, while maintaining a Neutral rating on the stock.
The revision follows E2open's report of subscription and professional services revenue that surpassed consensus for the fourth fiscal quarter of 2024. The company also provided guidance for fiscal year 2025 that was slightly better than expected.
The improved guidance is attributed to enhanced sales conversion rates noted in the fourth quarter of 2024, which were higher than those in the first half of the same year. This comes as E2open's management continues to implement a strategic shift in its go-to-market approach, focusing on a more targeted customer acquisition and success strategy.
Despite the positive outlook presented by the company, it was reported that E2open's revenue for the fourth quarter decreased by approximately 4.7% year-over-year. This marks the fourth consecutive quarter of revenue declines. However, the company's guidance for fiscal year 2025 suggests a return to growth, projecting a 0.5% increase at the midpoint, with anticipated improvements throughout the year.
The past fiscal year saw high levels of churn, especially among smaller contracts, with a Gross Retention Rate (GRR) of 90% and a Net Retention Rate (NRR) of 99%.
Nonetheless, E2open's management is optimistic that the formation of account-focused teams will bolster customer retention and encourage cross-selling, with $2 billion identified in cross-sell opportunities within the current customer base. Additionally, specialized "hunter" teams are expected to contribute to growth at the product level for both new and existing customer accounts.
Goldman Sachs acknowledges the management's near-term positive outlook on E2open's potential to reignite organic revenue growth. However, the firm adopts a cautious stance on E2open shares, expressing the need for evidence that operational changes will lead to sustained growth, especially considering the extent of reacceleration the management has guided compared to recent operational history.
InvestingPro Insights
Following Goldman Sachs' recent update, insights from InvestingPro provide additional context for investors considering E2open Parent Holdings (NYSE: ETWO). Despite not being profitable over the last twelve months, analysts predict that the company will turn profitable this year, a sentiment that aligns with the company's own guidance for fiscal year 2025. A notable large price uptick of 47.4% over the last six months also reflects a positive shift in investor sentiment, potentially due to strategic changes in the company’s operations.
From a valuation standpoint, E2open's market capitalization stands at $1.44 billion, with a price to book ratio of 0.97 as of the last twelve months ending in Q4 2024, suggesting that the stock is trading close to its book value. Moreover, while the company does not pay a dividend, which may be a consideration for income-focused investors, the emphasis on growth and profitability could appeal to those with a long-term investment horizon.
For those interested in a deeper dive into E2open's financial health and prospects, InvestingPro offers additional tips and real-time metrics. To explore these insights and make informed decisions, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With this tool, investors can access an extensive database of InvestingPro Tips, with several more listed for E2open, providing a comprehensive understanding of the company's financial landscape and future potential.
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