We Will Transition To AI Driven SaaS Excellence

Key Takeaways

• CXApp's shift to a SaaS AI model aims for higher recurring revenues and improved net margins through its subscription-based approach.
  
• Strategic hires and product innovations position CXApp to strengthen technological leadership and capture growth in the employee experience market.
  
• CXApp faces financial and compliance challenges, with AI investments causing cost pressures, transition to SaaS risking revenue stability, and reliance on partnerships heightening exposure.

Catalysts

Provides a workplace experience platform for enterprise customers in the United States, Canada, and the Philippines.

• CXApp's transformation from a services business to a SaaS AI-focused application business is a major operational shift that positions the company for scaling higher recurring revenues and improved net margins due to its subscription-based model, which accounted for 87% of total revenue.
  
• The development and market introduction of Agentic AI represent a significant growth opportunity, as it offers solutions in a multibillion-dollar market of employee experiences, aiming to integrate AI capabilities to enhance workplace engagement, which could result in increased revenue and market leadership.
  
• Expanding global footprints and strategic hires, such as the new SVP of Engineering with experience from Apple and NVIDIA, indicate a focus on robust product development and innovation, potentially leading to increased earnings through strengthened technological leadership and product differentiation.
  
• CXApp's robust patent portfolio, with 37 patents filed and 17 granted, provides a competitive edge and potential for higher revenue and margins through licensing opportunities and technological superiority in employee experience software.
  
• The growing trend of return-to-office scenarios emphasizes CXApp’s position to capitalize on the demand for enhanced employee engagement solutions, forecasting an increase in ARR and improved financial performance due to higher adoption rates by large enterprises.

CXApp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CXApp's revenue will grow by 42.5% annually over the next 3 years.
• Analysts are not forecasting that CXApp will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate CXApp's profit margin will increase from -271.7% to the average US Software industry of 12.0% in 3 years.
• If CXApp's profit margin were to converge on the industry average, you could expect earnings to reach $2.5 million (and earnings per share of $0.1) by about April 2028, up from $-19.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 49.1x on those 2028 earnings, up from -1.1x today. This future PE is greater than the current PE for the US Software industry at 30.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

CXApp Future Earnings Per Share Growth

Risks

• CXApp's recent filing extension for their 10-K might signal potential compliance or financial reporting challenges which could impact investor confidence and thus future financial stability, impacting earnings.
  
• The company's focus on expanding AI capabilities and associated investments in personnel could lead to increased operational costs, which may pressure net margins if not accompanied by equivalent revenue growth.
  
• Despite a profitable app business, the ongoing transition from services to a SaaS model could introduce financial instability, potentially affecting consistent revenue streams.
  
• The decline in full-year revenue highlights potential challenges in market penetration or customer acquisition, which might affect long-term revenue targets amidst competition.
  
• The company's reliance on partnerships with large multinational clients and specific platforms for growth might expose it to significant risks if any key partner discontinues or reduces collaboration, affecting revenue predictability.

Valuation

• The analysts have a consensus price target of $4.0 for CXApp based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $20.7 million, earnings will come to $2.5 million, and it would be trading on a PE ratio of 49.1x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $1.1, the analyst price target of $4.0 is 72.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.