JPMorgan's Sterling Auty downgraded the stock from Overweight to Neutral with a price target lowered from $145 to $96.
Piper Jaffray 'Logging Out'
LogMeIn managed to report a modest beat in Q2, but it was more than overshadowed by management's downward revision to full-year estimates due to poor renewal rates, Zukin said in the downgrade note. (See the analyst's track record here.)
Churn rates rose 350 basis points in the collaboration segment, which is the company's most important profit engine and accounts for more than 50 percent of total revenue, the analyst said.
While LogMeIn said churn rates are easily remedied, the results are notable enough to stoke fear that the core business is under pressure from modern vendors and a turnaround isn't as simple as management suggests, Zukin said.
The churn issues seen in the quarter stem from the acquisition of GoTo's assets, which creates a new concern that LogMeIn is unable to succeed in acquiring and integrating new businesses, the analyst said. Success in M&A deals is a vital component for the future of the business, which implies investors should be "logging out" of the stock for the time being, he said.
JPMorgan: Competition A Concern
Heading into LogMeIn's earnings report, JPMorgan's bullish stance was built on the notion that the company "carved out enough of a niche" in the collaboration market with few if any notable competitors, Auty said. (See the analyst's track record here.)
Exiting the report, the competitive landscape evolved into the "biggest concern," and any fixes will take at least a few quarters to enact, the analyst said.
In the positives column, LogMeIn's stock decline could prompt the company to become more aggressive with buybacks rather than dividends, Auty said. The company is expected to fully use its $700-million authorization after already buying back 1.645 million shares in Q2, he said.
Nevertheless, the software sector as a whole trades at an elevated valuation, which implies a company like LogMeIn needs to offer "clean fundamentals," the analyst said. This is no longer the case, as investors will be questioning LogMeIn's ability to deliver encouraging results in the near-term, he said.
LogMeIn shares were down 25.16 percent at the time of publication Friday and hit a new 52-week low.
KeyBanc: LogMeIn Targets B Increase In Total Addressable Market
11 Reasons To Like LogMeIn
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|Jul 2018||JP Morgan||Maintains||Neutral||Neutral|
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