Cloud Migration Will Erode Legacy Revenue Streams

Key Takeaways

• Accelerating adoption of integrated cloud platforms threatens AudioCodes' legacy products, core revenue streams, and long-term profitability.
  
• Heavy dependence on major platform partnerships and slow SaaS transition heighten risk of revenue loss, margin compression, and stagnating earnings.
  
• Transition to cloud and AI services, strong managed service growth, deep partnerships, targeted innovation, and agile operations are driving increased recurring revenues, margin stability, and market opportunities.

Catalysts

Provides advanced communications software, products, and productivity solutions for the digital workplace worldwide.

• The ongoing shift of enterprises from premise-based hardware and hybrid solutions to fully cloud-native and tightly integrated communication platforms is accelerating, which may sharply erode demand for AudioCodes' legacy connectivity and voice gateway products and threaten its dominant revenue stream, leading to potential multi-year revenue contraction.
  
• Increasing consolidation and standardization around major unified communications vendors such as Microsoft, Cisco, and Zoom could further reduce the addressable market for third-party integrations, intensifying price pressure and making it more difficult for AudioCodes to maintain pricing power or grow top-line sales.
  
• Heavy reliance on partnerships with major platforms-especially Microsoft Teams, which accounts for a significant share of growth-exposes AudioCodes to sudden and severe revenue losses if Microsoft alters partnership strategies or expands built-in native features, threatening both recurring revenue and gross margins.
  
• Slow conversion of hardware revenue into recurring SaaS and managed services, combined with substantial up-front R&D costs to chase conversational AI opportunities that remain slow to monetize, increases the risk of margin compression and stagnating earnings, especially if the ramp of AI-powered services fails to meet expectations.
  
• The transition to AI-driven, all-in-one platforms (with embedded voice, video, and messaging) by enterprises reduces dependence on third-party vendors like AudioCodes, risking obsolescence of key product offerings and putting long-term profitability and earnings at risk unless the company can dramatically accelerate innovation and differentiation.

AudioCodes Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on AudioCodes compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming AudioCodes's revenue will grow by 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 7.1% today to 1.7% in 3 years time.
• The bearish analysts expect earnings to reach $4.3 million (and earnings per share of $0.13) by about July 2028, down from $17.2 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 bearish analyst cohort, the company would need to trade at a PE ratio of 75.7x on those 2028 earnings, up from 18.5x today. This future PE is greater than the current PE for the US Communications industry at 28.4x.
• Analysts expect the number of shares outstanding to decline by 2.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.87%, as per the Simply Wall St company report.

AudioCodes Future Earnings Per Share Growth

Risks

• The company is successfully shifting its business model from hardware to cloud-based software and AI-powered voice services, which is increasing recurring revenues and improving margin stability, meaning net margins and earnings could accelerate as these trends continue.
  
• AudioCodes is achieving robust growth in its Live managed services and AI-powered conversational offerings, with recurring revenue for Live managed services up roughly 25 percent year-over-year to $67 million, supported by growing interest from large enterprises and global system integrators, which could drive sustained revenue expansion.
  
• Strategic partnerships and certifications with leading UCaaS platforms such as Microsoft Teams and Cisco Webex are deepening, opening significant addressable market increases and new multimillion-dollar contract opportunities that may improve both top-line revenue and long-term earnings.
  
• Innovation in specialized solutions like Meeting Insights On-Prem, which serves regulated and security-sensitive industries, is generating strong early adoption, opening new high-value verticals that could enhance overall revenue growth and diversification.
  
• The company's proactive response to global tariff challenges-including moving manufacturing out of China and implementing price increases-demonstrates operational agility, reducing cost pressures and supporting maintenance or improvement of profit margins during external shocks.

Valuation

• The assumed bearish price target for AudioCodes is $9.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of AudioCodes's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.5, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $257.0 million, earnings will come to $4.3 million, and it would be trading on a PE ratio of 75.7x, assuming you use a discount rate of 9.9%.
• Given the current share price of $10.8, the bearish analyst price target of $9.0 is 20.0% lower.
• 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.