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OneStream's SWOT analysis: AI-driven finance platform stock poised for growth

Published 12/17/2024, 06:33 AM
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OneStream, Inc. (NYSE:OS), a leading provider of cloud-based financial software solutions with a current market capitalization of $7.1 billion, has been making waves in the enterprise performance management (EPM) market since its founding in 2012. According to InvestingPro data, the company maintains strong financial health with more cash than debt on its balance sheet, positioning it well for continued growth in the competitive EPM space. The company's innovative platform, which unifies financial and operational data while leveraging artificial intelligence (AI) capabilities, has garnered significant attention from both customers and investors. As OneStream continues to expand its market presence and enhance its product offerings, analysts are closely watching its potential for sustained growth and profitability.

Company Overview

OneStream was established by a team of industry veterans, including former Oracle (NYSE:ORCL) Hyperion employees, who recognized the need for a more integrated and efficient approach to financial management. The company's leadership, including the CEO, President, CTO, and CRO, brings extensive experience in the EPM space, which has been instrumental in shaping OneStream's strategic direction and product development.

The company's core offering is a unified platform that integrates financial and operational data, automates workflows, and provides AI-driven insights to enhance forecast accuracy and operational efficiency. This comprehensive solution aims to modernize the Office of the Chief Financial Officer (CFO) by serving as the central system of record for financial data and analysis.

Market Position and Growth Potential

OneStream operates in a large and growing market, with analysts estimating the total addressable market (TAM) at approximately $50 billion. Despite its impressive growth to date, the company has only penetrated about 1% of this market, suggesting significant room for expansion. As of the latest reports, OneStream boasts over 1,482 customers and has achieved an annual recurring revenue (ARR) of $506 million, growing at a robust 31% year-over-year rate.

Analysts project that OneStream has the potential to quadruple its ARR to more than $2 billion in the coming years. This growth is expected to be driven by several factors, including the increasing need for compliance solutions and the impending end-of-support for legacy Hyperion systems in 2031, which is likely to accelerate the adoption of modern EPM platforms.

Financial Performance and Outlook

OneStream's financial performance has been strong, with the company maintaining a high gross retention rate of 98%, indicating strong customer satisfaction and product stickiness. The company's net expansion rate of 116% further underscores its ability to grow within its existing customer base.

Looking ahead, analysts forecast continued revenue growth for OneStream. Projections for fiscal year 2024 estimate revenue of $475.50 million, increasing to $576.50 million in FY25 and $696.00 million in FY26. InvestingPro analysis reveals that 6 analysts have recently revised their earnings estimates upward for the upcoming period, with analyst price targets ranging from $30 to $39 per share. For deeper insights into OneStream's growth potential and comprehensive valuation metrics, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers. While the company is currently operating at a loss, with an estimated EPS of $(0.04) for FY24, it is expected to turn profitable in FY25 with an EPS of $0.07, growing to $0.24 in FY26.

The company's free cash flow (FCF) margins are also anticipated to improve over the next 12 to 24 months, with some analysts projecting that OneStream could achieve FCF margins exceeding 20% in the coming years. This improvement is expected to be driven by operating leverage from growth and a beneficial mix shift as software-as-a-service (SaaS) becomes a larger part of the company's revenue.

Competitive Landscape

OneStream operates in a competitive market that includes both legacy vendors and newer entrants. The company's primary competitors include Oracle (NYSE:ORCL), SAP (NYSE:SAP), IBM (NYSE:NYSE:IBM), and Infor, among others. Despite the crowded landscape, OneStream has managed to differentiate itself through its unified platform approach and AI-driven capabilities.

The company's strategy to replace legacy EPM platforms presents a significant opportunity, particularly as support for older systems like Hyperion is phased out. OneStream's modern, cloud-based solution is well-positioned to capture market share from these legacy systems, especially among large enterprises seeking more agile and integrated financial management tools.

Technology and Innovation

At the core of OneStream's value proposition is its innovative technology stack. The platform's ability to unify fragmented data from various sources and provide a dynamic view of enterprise performance sets it apart from point solutions and legacy systems. The integration of AI and machine learning capabilities further enhances the platform's ability to automate workflows, accelerate analysis, and improve forecast accuracy.

Analysts anticipate potential upside from new product announcements, particularly around embedded AI and automation features. These innovations are expected to strengthen OneStream's competitive position and drive further adoption among finance teams looking to transition from traditional record-keeping roles to more strategic advisory functions.

Management and Leadership

OneStream's management team, comprising industry veterans with deep experience in the EPM space, is viewed as a significant asset by analysts. The leadership's expertise is expected to play a crucial role in navigating the competitive landscape and capturing additional market share. Their track record in developing and marketing financial software solutions provides OneStream with valuable insights into customer needs and industry trends.

Bear Case

How might macroeconomic pressures impact OneStream's growth?

In the face of potential economic headwinds, OneStream could face challenges in maintaining its current growth trajectory. While InvestingPro data indicates the company has strong liquidity with assets exceeding short-term obligations, it's worth noting that OneStream is currently trading above its Fair Value estimate according to InvestingPro's valuation models, suggesting investors should carefully consider entry points. Economic uncertainties may lead companies to delay or scale back their investments in financial management systems, particularly if they are viewed as discretionary expenditures. This could result in longer sales cycles and reduced deal sizes for OneStream.

Moreover, if enterprises face budget constraints, they may opt for less comprehensive solutions or delay the replacement of legacy systems, which could slow down OneStream's market penetration. The company's focus on large enterprises may also make it more susceptible to macroeconomic fluctuations, as these organizations often adjust their spending more dramatically in response to economic pressures.

What challenges could OneStream face in expanding internationally?

As OneStream seeks to grow its international footprint, it may encounter several obstacles. Different regions have varying regulatory requirements and accounting standards, which could necessitate significant localization efforts for OneStream's platform. This adaptation process could be both time-consuming and costly, potentially slowing the company's expansion plans.

Additionally, OneStream may face stiff competition from local providers who have established relationships and a deep understanding of regional market nuances. Building brand recognition and trust in new markets could require substantial investment in marketing and sales efforts. The company may also need to navigate complex partnership ecosystems and adapt its go-to-market strategies to align with local business practices, which could impact its growth rate and profitability in the short to medium term.

Bull Case

How could OneStream's AI integration drive future growth?

OneStream's integration of AI into its platform presents a significant opportunity for future growth. As businesses increasingly seek to leverage data for strategic decision-making, OneStream's AI-driven insights could become a key differentiator in the market. The ability to automate complex financial processes, provide predictive analytics, and offer real-time scenario planning could dramatically enhance the value proposition for CFOs and finance teams.

Furthermore, as AI technology continues to advance, OneStream could introduce new features and capabilities that address evolving customer needs. This could lead to increased adoption rates, higher customer satisfaction, and potentially larger deal sizes. The AI integration could also open up new market segments beyond traditional finance departments, such as operational planning and analysis across various business units.

What opportunities exist for OneStream in replacing legacy systems?

The impending end-of-support for legacy EPM systems, particularly Oracle's Hyperion in 2031, presents a substantial opportunity for OneStream. Many large enterprises still rely on these older systems and will be forced to migrate to modern solutions in the coming years. OneStream's unified platform approach and cloud-native architecture position it well to capture a significant portion of this migration market.

As companies look to replace their legacy systems, they are likely to seek solutions that offer more than just a like-for-like replacement. OneStream's ability to provide a comprehensive suite of financial management tools, coupled with advanced analytics and AI capabilities, could make it an attractive option for enterprises undergoing digital transformation. This replacement cycle could drive sustained growth for OneStream over an extended period, potentially accelerating its market share gains and revenue expansion.

SWOT Analysis

Strengths:

  • Unified platform integrating financial and operational data
  • High customer retention rate (98% gross retention)
  • Strong leadership team with industry expertise
  • AI-driven insights and automation capabilities
  • Robust partner ecosystem with over 250 partners

Weaknesses:

  • Limited international presence compared to global competitors
  • Dependency on core finance solutions for current revenue
  • Relatively new entrant in a market with established players

Opportunities:

  • Large $50 billion total addressable market with low current penetration
  • Replacement of legacy EPM systems, especially with Hyperion end-of-support in 2031
  • Expansion into operational use cases beyond core finance functions
  • Growing demand for AI-enabled financial planning and analysis tools

Threats:

  • Intense competition from both legacy vendors and new entrants
  • Potential economic downturn impacting customer IT spending
  • Rapid technological changes requiring continuous innovation
  • Regulatory changes affecting data management and AI usage in finance

Analysts Targets

  • Morgan Stanley (NYSE:MS): $29.00 (August 19th, 2024)
  • BTIG: $37.00 (August 19th, 2024)
  • Piper Sandler: $32.00 (August 19th, 2024)

This analysis is based on information available up to August 19, 2024, and reflects the market conditions and analyst opinions as of that date.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on OS. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore OS’s full potential at InvestingPro.

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