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Bull Of The Day: LivePerson (LPSN)

Daniel Laboe
·4 mins read

LivePerson (LPSN) is the world's #1 AI-powered messaging platform, and COVID-19 has provided a strong tailwind that could send these shares surging past their old all-time highs. The company is still on the ground floor of its potential, and analysts are becoming increasingly optimistic about the future of this business. EPS estimates have been on the rise for LPSN pushing this stock up to a Zacks Rank #1 (Strong Buy).

The Business

LivePerson is a leader in conversational commerce and customer service through messaging applications, including Apple Business Chat (AAPL), WhatsApp, Facebook Messenger (FB), text messaging, and even through Amazon's Alexa (AMZN). The company leverages AI to enable seamless communication between brands and customers.

You probably wonder what conversational commerce is, and it's exactly what it sounds like. Conversational commerce is a form of e-commerce facilitated through messaging applications. For example, you can send a text or say to Alexa, "I need to book a flight," "I need a mortgage quote," or a plethora of other requests. Businesses that utilize LivePerson's platform will be able to satisfy these demands through the customers' preferred messaging application.

According to the business's most recent annual report, the firm has "over 18,000 customers — including leading brands like HSBC (HBCYF), Orange (FNCTF), GM Financial, and The Home Depot (HD) — have deployed our conversational platform to orchestrate how AI and human agents serve customers at scale."

Pandemic Tailwind 

LivePerson is seeing healthy organic growth as the ease and necessity of utilizing already heavily dependent communication channels like smartphone messaging and Alexa voice communication. The Pandemic has intensified our reliance on digital technology, and LivePerson's is well-positioned to capitalize on this expedited trend.

This AI-driven messaging platform has seen 9 consecutive quarters of robust double-digit year-over-year sales growth. Conversation volumes surged 20% in March from the prior month and compounded at a double-digit pace in April.

Contact centers are only at 50% capacity compared to pre-COVID levels, and this is a division that businesses are eager to cut spending on. The automated customer interactions that LivePerson offers provide this increasingly attractive service, which allows companies to reduce contact center spending.

In the enterprise's latest earnings release, management raised its EBITDA guidance from effectively flat to a robust positive range, while maintaining its revenue expectations.

Risk/Reward

Uncertainty is high as LPSN remains unprofitable as it grows out of its topline. The company still has a healthy balance sheet with $171 million in cash, which more than makes up its level of current liabilities. Analysts are optimistic about the future of this business, with average annual revenue targets representing a topline acceleration over the next couple of years (23% and 27%, respectively).

LivePerson is still just beginning to dive into its market potential. According to the business's internal analysis, the go-to-market opportunity is as large as $60 billion. The graphic below provided by LivePerson's illustrates the segment breakdown of this opportunity.

LPSN is currently trading at an enterprise-value-to-revenue of 6.1x, which is a substantial discount to the broader software-as-a-service (SaaS) category multiple, which is sitting at a little more than 14x. The messaging opportunity for automated communication between brands and customers is enormous, and I see these shares as a great opportunity today.

10 out of 12 analysts are calling this stock a buy right now with an average price target that is north of $38 per share and some saying the stock could blow past $50, which would represent upsides of 16% and 60% respectively (from the $33.25 it is trading at today). I would not hesitate to pull the trigger on this under the radar investment opportunity.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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LivePerson, Inc. (LPSN) : Free Stock Analysis Report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
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