Google Cloud And Databricks Will Fuel AI Customer Engagement

Key Takeaways

• Rapid generative AI adoption and digital transformation position LivePerson as a potential category leader, enabling outsized market share gains and structurally higher profitability.
  
• Strategic balance sheet improvements and specialized, secure AI offerings make LivePerson a trusted, de-risked partner for large enterprises, spurring long-term contract wins and recurring revenue growth.
  
• Declining revenues, customer churn, mounting competition, and operational risks threaten LivePerson's growth prospects, profitability, and market position amidst persistent industry and economic pressures.

Catalysts

Operates as a digital customer conversation.

• Analyst consensus expects generative AI adoption to drive operational efficiency and revenue uplift, but the rapid increase-45% sequential jump in generative AI-powered conversations-suggests LivePerson could become the category leader in AI-driven customer engagement, claiming share disproportionate to market estimates and delivering both accelerated revenue and meaningfully higher net margins.
  
• Analysts broadly agree that the refinancing and balance sheet transformation will stabilize customer relationships and bookings, but this decisive deleveraging and extended runway now position LivePerson as one of the most financially de-risked and attractive strategic partners in the space, setting the stage for rapid re-acceleration in long-term enterprise deal signings and a sustained positive impact on earnings.
  
• As enterprises rush to embrace digital-first, omni-channel engagement, LivePerson's unified migration to Google Cloud-combined with exclusive access to advanced capabilities like Gemini and Databricks orchestration-opens the door to large-scale global partnerships that can jumpstart recurring SaaS revenue growth well above industry averages.
  
• Increasing regulatory pressure around data security in sectors like financial services and healthcare is driving enterprises to seek trusted AI solutions: LivePerson's specialized, verticalized offerings and secure extensible platform position it to secure higher-margin, long-term contracts in these mission-critical domains, causing a structurally higher average revenue per customer.
  
• The mainstream integration of conversational commerce, where seamless AI-powered customer journeys blend chat, voice, and digital interfaces, is rapidly accelerating; LivePerson's proven success in orchestrating multimodal interactions across leading brands signals a coming inflection point where new modes of commerce and support drive exponential expansion of its addressable market and a step-change in both topline growth and profitability.

LivePerson Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on LivePerson compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming LivePerson's revenue will decrease by 11.4% annually over the next 3 years.
• Even the bullish 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 -62.7% to the average US Software industry of 13.1% in 3 years.
• If LivePerson's profit margin were to converge on the industry average, you could expect earnings to reach $24.7 million (and earnings per share of $0.21) by about August 2028, up from $-170.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from -0.6x today. This future PE is lower than the current PE for the US Software industry at 36.5x.
• Analysts expect the number of shares outstanding to grow by 6.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

LivePerson Future Earnings Per Share Growth

Risks

• LivePerson's revenue from hosted services declined by 25 percent year-over-year and professional services revenue declined by 26 percent year-over-year, indicating that the company is facing substantial topline contraction, which may persist if competitive and industry pressures intensify, directly impacting future revenues.
  
• The company reported net revenue retention at 78 percent in the second quarter, down from 80 percent in the previous quarter, reflecting higher churn or reduced spending among existing customers, particularly among its large enterprise clients, which threatens both future recurring revenues and overall revenue stability.
  
• There are persistent renewal hesitations and slower-than-expected bookings, especially with large customers, which were attributed both to macroeconomic uncertainty and to LivePerson's financial instability; if customer confidence is not fully restored or if macro headwinds persist, this could result in further declines in new and renewal business, negatively affecting revenue growth.
  
• Competition is intensifying not only from large tech giants advancing in generative AI and digital engagement platforms, but also from both new and smaller AI-based competitors offering similar bot capabilities; this increased competition may squeeze LivePerson's pricing power and market share, putting additional pressure on revenues and margins.
  
• The ongoing migration to Google Cloud and the effort to integrate with Databricks, while strategic, introduces risk of execution delays and continued product complexity, which may prolong customer buying cycles, increase operational costs, and limit the company's ability to achieve sustainable profitability, thereby impacting net margins and earnings.

Valuation

• The assumed bullish price target for LivePerson is $1.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of LivePerson's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.5, and the most bearish reporting a price target of just $0.85.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $189.1 million, earnings will come to $24.7 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 12.3%.
• Given the current share price of $1.04, the bullish analyst price target of $1.5 is 30.7% 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.