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AudioEye Grows Sales Leads But Sees Lengthening Sales Cycles

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A Quick Take On AudioEye

AudioEye (NASDAQ:AEYE) reported its Q3 2022 financial results connected November 10, 2022, missing gross but beating EPS statement estimates.

The institution operates a SaaS level for website accessibility monitoring and related compliance requirements.

Although prospective investors whitethorn position AEYE’s EV/Revenue aggregate of 2.5x arsenic a imaginable buying opportunity, until nan patient reaches operating breakeven, improves its rate and rate travel metrics and reports normal income rhythm times, I’m connected Hold for AEYE stock.

AudioEye Overview

Tucson, Arizona-based AudioEye was founded successful 2005 to supply accessibility monitoring and related compliance accusation for agencies, websites connected nan unfastened web and connected circumstantial platforms.

The patient is headed by Chief Executive Officer David Moradi, who was antecedently CEO of Anthion Management, a exertion task money and anterior to that was a portfolio head astatine Pequot Capital Management.

The company’s superior offerings include:

  • Website accessibility checker

  • Color opposition checker

  • Accessibility training

The patient acquires customers done its in-house income and business improvement efforts arsenic good arsenic done transmission partners.

AudioEye’s Market & Competition

According to a 2021 marketplace research report by Mordor Intelligence, nan world marketplace for web analytics was an estimated $3 cardinal successful 2020 and is forecast to transcend $7 cardinal by 2026.

This represents a forecast very beardown CAGR of 15.2% from 2021 to 2026.

The main drivers for this expected maturation are a continued emergence successful nan automation of online trading and maturation successful online shopping by consumers and businesses.

Also, nan COVID-19 pandemic will apt supply a important boost to web analytics providers arsenic businesses request much accusation astir their online properties to cater to much customers performing buying activities online.

North America is forecast to proceed to supply nan highest request of immoderate region worldwide, though nan Asia Pacific is expected to turn request astatine nan fastest complaint done 2025 arsenic nan floor plan shows below:

Web Analytics Market

Web Analytics Market (Mordor Intelligence)

Within AudioEye’s circumstantial market, nan world marketplace for website accessibility package was an estimated $386 cardinal successful 2021 and is forecast to scope $796 cardinal by 2028, according to a research report by Market Research Guru.

This represents a forecast CAGR of 10.9% from 2022 to 2028.

Key companies successful this abstraction include:

  • Google

  • Siteimprove

  • DYNO Mapper

  • Deque

  • Crownpeak

  • Level Access

  • DubBot

  • Monsido

  • Silktide

AudioEye’s Recent Financial Results

  • Total gross by 4th has grown according to nan pursuing chart:

Total Revenue

Total Revenue (Seeking Alpha)

  • Gross profit separator by 4th accrued somewhat year-over-year:

Gross Profit Margin

Gross Profit Margin (Seeking Alpha)

  • Selling, G&A expenses arsenic a percent of full gross by 4th person dropped materially successful caller quarters:

Selling, G&A % of Revenue

Selling, G&A % of Revenue (Seeking Alpha)

  • Operating income by 4th has remained antagonistic though pinch immoderate betterment recently:

Operating Income

Operating Income (Seeking Alpha)

  • Earnings per stock (Diluted) person besides travel disconnected their worst lows successful precocious 2021:

Earnings Per Share

Earnings Per Share (Seeking Alpha)

(All information successful nan supra charts is GAAP)

In nan past 12 months, AEYE’s banal value has risen 18.2% vs. that of nan Nasdaq 100 Index’s driblet of 7.3%, arsenic nan floor plan indicates below:

Stock Price Comparison

Stock Price Comparison (Seeking Alpha)

In its past net telephone (Source - Seeking Alpha), covering Q3 2022’s results, guidance highlighted nan quarter’s affirmative gross maturation for nan 27th consecutive quarter, ‘despite immoderate macroeconomic headwinds.’

Revenue maturation was owed to gains successful its various partner and marketplace and endeavor channels.

Management noted nan advancement it has made since nan opening of 2022 successful driving down costs, which so it has, but nan patient still has a roadworthy up to execute operating breakeven.

As to its financial results, full gross roseate 24.2% year-over-year while ARR (Annual Recurring Revenue) grew by 19%.

Management did not disclose immoderate institution aliases customer retention complaint metrics, different than to qualify them arsenic ‘high’ without further elaboration.

AEYE ended nan 4th pinch astir 81,000 full customers, up from 80,000 a twelvemonth prior.

For nan equilibrium sheet, nan institution vanished Q3 2022 pinch $7.8 cardinal successful rate and equivalents and nary debt.

Over nan trailing 12 months, free rate utilized was $7.1 million, of which superior expenditures accounted for $100,000. The institution paid a hefty $5.7 cardinal successful stock-based compensation successful nan past 4 quarters.

Valuation And Other Metrics For AudioEye

Below is simply a array of applicable capitalization and valuation figures for nan company:

Measure [TTM]

Amount

Enterprise Value / Sales

2.5

Enterprise Value / EBITDA

NM

Price / Sales

2.7

Revenue Growth Rate

21.5%

Net Income Margin

-47.1%

GAAP EBITDA %

-31.8%

Market Capitalization

$77,800,000

Enterprise Value

$71,380,000

Operating Cash Flow

-$7,000,000

Earnings Per Share (Fully Diluted)

-$1.19

(Source - Seeking Alpha)

The Rule of 40 is simply a package manufacture norm of thumb that says that arsenic agelong arsenic nan mixed gross maturation complaint and EBITDA percent complaint adjacent aliases transcend 40%, nan patient is connected an acceptable growth/EBITDA trajectory.

AEYE’s astir caller GAAP Rule of 40 calculation was antagonistic (10.3%) arsenic of Q3 2022, truthful nan patient is successful request of important betterment successful this regard, contempt caller amended results, per nan array below:

Rule of 40 - GAAP

Calculation

Recent Rev. Growth %

21.5%

GAAP EBITDA %

-31.8%

Total

-10.3%

(Source - Seeking Alpha)

Future Prospects For AudioEye

Looking ahead, guidance has scheduled its Q4 and afloat twelvemonth 2022 convention telephone for March 9, 2023.

Leadership is focused connected a recurring gross exemplary going guardant and nan Q3 results of a maturation of ARR of 22% during Q3 2022 versus 2021 is simply a promising start.

However, nan company's financial position suggests it whitethorn request to get much superior fixed its debased rate position comparative to its caller humanities rate use. This whitethorn return nan shape of an equity offering, diluting shareholders successful nan process, aliases incurring debt.

Also, while nan patient is seeing ‘record leads’ for caller business, it is besides experiencing immoderate lengthening of income cycles, which is accordant pinch what I’ve been seeing different software-centric companies experience.

Regarding valuation, nan marketplace is valuing AEYE astatine an EV/Sales aggregate of astir 2.5x.

The Meritech Capital Index of publically held SaaS package companies showed an mean guardant EV/Revenue aggregate of astir 6.2x connected February 23, 2023, arsenic nan floor plan shows here:

Enterprise Value / Next 12 Mos. Multiple

Enterprise Value / Next 12 Mos. Multiple (Meritech Capital)

So, by comparison, AEYE is presently weighted by nan marketplace astatine a important discount to nan broader Meritech Capital SaaS Index, astatine slightest arsenic of February 23, 2023.

The superior consequence to nan company’s outlook is simply a continued macroeconomic slowdown, which whitethorn accelerate caller customer discounting, is already producing slower income cycles and tin trim its gross maturation trajectory.

With awesome tech companies continuing to laic disconnected labor aft hiring excessively galore during nan pandemic, I’m not optimistic astir AEYE’s near-term prospects.

Although prospective investors whitethorn position AEYE’s EV/Revenue aggregate of 2.5x arsenic a imaginable buying opportunity, until nan patient reaches operating breakeven and reports normal income rhythm times, I’m connected Hold for AEYE.

Editor's Note: This article covers 1 aliases much microcap stocks. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Donovan Jones floor plan picture

Get IPO Edge pinch actionable investigation connected next-generation precocious maturation stocks

I'm nan laminitis of IPO Edge connected Seeking Alpha, a investigation work for investors willing successful IPOs connected US markets. Subscribers person entree to my proprietary research, valuation, data, commentary, opinions, and chat connected U.S. IPOs. Join now to get an insider's 'edge' connected caller issues coming to market, some earlier and aft nan IPO. Start pinch a 14-day Free Trial.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: This study is for acquisition purposes and is not financial, legal, aliases finance advice. The accusation referenced aliases contained herein whitethorn change, beryllium successful error, go outdated and irrelevant, aliases beryllium removed astatine immoderate clip without notice. The writer is not an finance advisor. You should execute your ain investigation connected your peculiar financial business earlier making immoderate decisions.

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