On Tuesday, B.Riley adjusted its outlook on YEXT Inc. (NYSE: YEXT), reducing the price target to $7.00 from the previous $8.00 while maintaining a neutral stance on the stock. The firm's decision comes after Yext (NYSE:YEXT) reported first-quarter earnings that slightly missed the subdued expectations of the market.
Additionally, the company provided a revised fiscal year 2025 forecast that presents a combination of lower revenue projections alongside higher expected EBITDA.
The analyst cited several short-term (ST) challenges contributing to the revised target, including an extended sales cycle and a difficult spending environment for enterprises. Despite these concerns, the analyst pointed to positive factors that could support the company's performance in the longer term.
Management's statements suggest an anticipated growth in Annual Recurring Revenue (ARR) towards the end of the year, bolstered by a growing deal pipeline and improved sales productivity. Moreover, the company's recent restructuring efforts are expected to lead to robust free cash flows (FCFs).
The pending acquisition of Hearsay Systems by Yext is seen as a favorable move, with potential for synergies and an increased market opportunity. However, B.Riley prefers to take a cautious approach, choosing to wait for clearer indicators of a sustained recovery before altering its rating.
In other recent news, Yext Inc . reported a significant increase in EBITDA, attributed to staff reductions and improved operational efficiency. The company is on track to reach a $100 million EBITDA run rate and more than $90 million in free cash flow by the end of fiscal year 2025. Despite revenue challenges, Yext's management reaffirmed their confidence in accelerating annual recurring revenue (ARR), expecting mid-single-digit percentage growth by the fourth quarter.
In a significant development, Yext acquired Hearsay Systems for $125 million, aiming to enhance its standing in the financial services sector. This acquisition is expected to contribute to Yext's high single-digit ARR growth by the first half of 2025. Despite challenges such as large customer churn and budgetary pressures, the company remains optimistic about ARR growth in the second half of the year.
Roth/MKM maintained its 'Buy' rating on Yext, acknowledging the company's recent earnings report as a mix of challenges and successes. The firm remains optimistic about Yext's future performance, particularly for investors looking for software-as-a-service investment opportunities. Despite mixed results, Yext's ability to surpass EBITDA expectations suggests strong focus on cost management and operational efficiencies.
InvestingPro Insights
As Yext Inc. navigates through a challenging market environment, real-time data from InvestingPro offers additional context to the company's financial health and market performance. The company's market capitalization currently stands at $634.98 million, reflecting its size and market value. Despite a negative P/E ratio of -236.67, indicating that investors are paying more for the company's earnings than its current profitability justifies, Yext's impressive gross profit margin of 78.37% in the last twelve months as of Q4 2023 showcases its ability to maintain a significant markup on its services.
InvestingPro Tips highlight that management's confidence in the company's prospects is evident through aggressive share buybacks. Additionally, the fact that Yext holds more cash than debt on its balance sheet provides financial flexibility and may be a sign of underlying strength. However, with 4 analysts having revised their earnings downwards for the upcoming period, investors should consider this cautious sentiment in their analysis.
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