AI Integration And Amazon Connect Channels Will Uplift Prospects

Key Takeaways

• Strategic transformations and new AI innovations are poised to elevate retention, boost bookings, and positively impact future revenue growth and net margins.
  
• Expanded partnerships and integrations aim to capture market share and stabilize finances, improving long-term profitability and revenue opportunities.
  
• Customer attrition, legacy issues, and increased costs could negatively impact revenue, profitability, and growth, with debt concerns adding additional strain.

Catalysts

Operates as a digital customer conversation.

• LivePerson's transformation strategy focuses on reinvigorating go-to-market capabilities, which has led to improved retention metrics and win rates, driving sequential increases in bookings. This is expected to positively impact future revenue growth.
  
• The company is innovating with new AI-driven features such as Bring Your Own LLM and Copilot Rewrite, accelerating the adoption of generative AI on its platform. These innovations are likely to enhance operational efficiency and could improve net margins.
  
• LivePerson is strengthening its capital structure through strategic agreements like the one with Lynrock Lake, reinforcing its position as a long-term partner, which could stabilize its financials and potentially improve earnings.
  
• The integration of voice and digital channels, including upcoming integrations with Cisco and Amazon Connect, aims to capture a larger share of the market, which is expected to significantly increase revenue opportunities.
  
• The company's focus on expanding strategic partnerships and refining sales strategies is poised to increase partner-driven bookings, which could result in higher revenue and improved profitability in the future.

LivePerson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LivePerson's revenue will decrease by 10.2% annually over the next 3 years.
• Analysts are not forecasting that LivePerson will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate LivePerson's profit margin will increase from -43.0% to the average US Software industry of 12.0% in 3 years.
• If LivePerson's profit margin were to converge on the industry average, you could expect earnings to reach $27.2 million (and earnings per share of $0.28) by about May 2028, up from $-134.3 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 4.8x on those 2028 earnings, up from -0.6x today. This future PE is lower than the current PE for the US Software industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 3.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

LivePerson Future Earnings Per Share Growth

Risks

• The company is experiencing ongoing attrition and expects customer cancellations to negatively impact revenue throughout most of 2025. Customer attrition and cancellations threaten revenue stability and growth.
  
• Despite improvements, LivePerson acknowledges issues with customer churn linked to legacy problems, which could hinder efforts to stabilize their customer base and negatively impact net revenue retention rates.
  
• The company anticipates declines in gross margin during 2025 due to costs associated with cloud migration, which may impact overall profitability and net margins.
  
• The strategy to invest heavily in sales and marketing does not guarantee immediate returns, and the increased spending is expected to impact profitability, leading to an anticipated adjusted EBITDA loss in 2025.
  
• The existing debt situation remains a concern, and efforts to address it may require significant resources that could otherwise be used to support business growth or improve financial performance.

Valuation

• The analysts have a consensus price target of $0.95 for LivePerson based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.0, and the most bearish reporting a price target of just $0.85.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $226.3 million, earnings will come to $27.2 million, and it would be trading on a PE ratio of 4.8x, assuming you use a discount rate of 11.4%.
• Given the current share price of $0.88, the analyst price target of $0.95 is 7.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.