Alert: 1 Founder Led Tech Firm with 44.7% Upside
Investment Alert: Buy LPSN Under $4.60/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
Robert P. Locascio isn’t a name that is familiar to the ordinary person on the street but he’s well worth getting to know. As Founder and CEO of LivePerson, a cloud provider of customer engagements, Locascio has grown the firm from inception to going public in 2000 and successfully navigated the dot com crash.
He has also overseen remarkable revenue growth. In the last five years, revenues have grown without interruption, despite the boom and busts in the stock market and economy more broadly.
Here’s a snapshot of revenue growth over the past five years:
- 2018: $249.8 million (+14.1%)
- 2019: $291.6 million (+16.7%)
- 2020: $366.6 million (+25.7%)
- 2021: $469.6 million (+28.1%)
- 2022: $514.8 million (+9.6%)
With a tenured success story spanning multiple decades, does Locascio’s firm deserve a spot on your watchlist?
Key Points
- LivePerson helps businesses connect to customers via a wide range of channels, including chat, voice, email and social media.
- It has a strong track record of revenue growth and gross margins.
- The company has a large and loyal customer base, including many leading brands.
What Does LivePerson Do?
In essence, LivePerson helps businesses connect to customers via a wide range of channels, including chat, voice, email and social media. The company has earned the trust of Fortune 500 businesses as well as SMBs.
As businesses increasingly aim to narrow the gap between product/service and customer interaction, LivePerson is well-positioned to help them reach their goals. It is also well ensconced into the digital landscape, so businesses with limited online presence can more rapidly serve online audiences.
So, what makes the investment case compelling?
Why Buy LivePerson?
In addition to solid revenue growth compounding at north of 16% annually over the past five years, LivePerson has a stunning gross margin, albeit it has been modestly declining for the past five years. Gross margins are still impressive, most recently sitting at 64.1%, down from 75.0% five years ago.
We would like to see operating income go positive but it appears that management is sacrificing the bottom line in order to grow customer count, and that’s something it has done really well.
Leading brands like The Home Depot, GM Financial and HSBS have chosen LivePerson alongside close to 20,000 other customers. Why did they choose LivePerson? To enable them to create a human-like customer experience, leveraging AI and allowing end consumers interact in a conversational way with the brands they trust.
This broad entrenchment into the US eco-system creates a high moat, which is not easily disrupted by a competitor. Any would-be competitor needs to elbow in their territory one client at a time, no mean feat.
How High Could LivePerson Go?
Generally, we err on the side of being more conservative when it comes to valuation. But in this case our numbers are more optimistic than Wall Street analysts, who have a consensus target of $5.38 per share.
We think the upside is closer to $7 per share. Our calculation led to a $6.69 fair value estimate for LivePerson, which would translate to 44.7% upside if realized.
