AVPT - AvePoint: An Interesting Tech Stock Yet To Prove Itself

Summary

• AvePoint has shown growth potential and resiliency under difficult economic conditions.
• Like most tech stocks, its share price has taken a beating over the last couple of years.
• It hit a bottom at its 52-week low in October 2022, and if it can get closer to profitability as it grows revenue, it would be a strong catalyst.
• A question that needs to be asked is as market conditions improve, is this one of the tech stocks to hold in a portfolio, or are there better, safer options?

AvePoint ( AVPT ) is a tech company that provides solutions for Microsoft 365 data management via cloud-hosted collaboration systems. For a SaaS SPAC company it hasn't performed too badly, growing revenue on a consistent basis, although it still remains unprofitable.

Its share price has been beaten down like most other tech stocks over the last couple of years, but may have recently bounced off its bottom, possibly providing a good entry point for those looking for a speculative tech stock that has good risk/reward attached to it.

While the company has performed well under hard economic conditions, it still has to prove itself over a long period of time in order to be considered a viable long-term holding. But in the short term, by which I mean over the next year or so, it does have the potential to make a nice upward move if interest rates level off and maybe reverse direction, and the economy does enter into a deep recession that will have an even stronger impact on company spending than has already happened.

In this article we'll look at some of its recent numbers, how it's likely to perform in the near term, and whether or not it's worth the risk of taking a position in when there will be plenty of other tech companies taking off once the economic conditions warrant it.

Some of the numbers

Revenue in the third quarter was $62.7 million, up 16 percent from the $54 million in revenue generated in the third quarter of 2021. Revenue for the first nine months of 2022 was $168.7 million, up by about $30 million from the $138 million in revenue produced in the first nine months of 2021.

Revenue from SaaS was $30 million, up 34 percent year-over-year.

Gross profit in the reporting period was $45.9 million, up $7.2 million from the $38.7 million in revenue from the third quarter of 2021. Gross margin in the quarter was 73.2 percent, compared to gross margin of 71.8 percent last year in the same quarter.

Operating loss in the quarter was $(7.4) million, or $(0.4) per share, an improvement over the operating loss of $(9.7) million, or $(0.5) per share in the third quarter of 2021.

Operating loss for the first nine months of 2022 was $(28.8) million, or $(0.16) per share, compared to an operating loss of $(60.1 million, o4 $(0.47) per share in the first nine months of 2021.

Cash and cash equivalents at the end of the third quarter were $218 million, down from the $268 million in cash and cash equivalents at the end of calendar 2021.

ARR in the reporting period was $191.7 million, up 30 percent year-over-year.

Company guidance for Q4 2022 is for revenue of $63 million to $65 million, which would be a gain of 19 percent year-over-year. Operating income is expected to be in a range of $1.5 million to $3.5 million.

Full-year revenue is expected to reach $231.7 million to $233.7 million, up 21 percent from full-year 2021.

Operating loss for the year is guided for $(3.2) million to $(1.2) million.

Overall ARR for full-year 2022 is projected to come in at $202 million to $206 million, up 28 percent over full-year 2021.

Taking into consideration the economic conditions and the high interest rate environment that hits tech companies harder than most other sectors, this isn't a bad performance, but investors using a DCF model to project future performances, always discount the share price of tech companies in that environment.

For that reason, that's likely to continue as the Federal Reserve will raise rates for at least a couple of more months in my opinion, and possibly longer if inflation remains stubbornly high.

The good news is, AVPT has a strong balance sheet and isn't burning cash so fast it's going to get in any trouble over the next year or two.

So, it has time to take the steps it needs to in order to position itself for long-term growth and have its share price rewarded once the high-interest rate environment is resolved. I don't see interest rates being drastically reduced going forward, but if they pull back to lower levels companies like AvePoint are going to benefit from it.

Some of its recent moves

A few of the moves AVPT has taken recently to position itself for long term growth was to acquire tyGraph and Essential, while also developing a new R&D hub in Singapore.

The purpose of the research and development hub in Singapore is to be the international headquarters of AVPT. It'll serve as a means of training local talent for the purpose of supporting the increasing global demand for B2B SaaS solutions.

Essential, a company based in South Korea, was acquired for the purpose of accelerating the ability of AVPT to empower big organizations in South Korea to achieve the digital transformation goals of the companies.

For tyGraph, it was acquired to help organizations "organize, measure, and analyze human interactions to accelerate success in the digital workplace. "Essential and tyGraph are probably going to have an immediate positive impact on the growth of AVPT, but the R&D hub in Singapore could eventually become of significant long-term value to the company as it attempts to scale in the years ahead. It'll take some time to see how they impact the performance of AVPT, but they appear to be solid, complementary additions to the company.

Conclusion

My biggest question concerning AVPT is whether or not there's any advantage to taking a position in the tech stock versus the potential of more established tech stocks that have also taken a big hit over the last couple of years.

In other words, while the company appears to be doing okay at the time, is there anything that differentiates and sets it apart from its peers or other tech companies? My answer to that is this: I don't see anything special in AVPT, other than it is doing better than most other SPACs that have gone public. Based upon that criterion it's doing well, but once the economy improves and interest rates stabilize, I'm not sure AVPT will do any better than many other tech companies that have longer track records and a history of profitability.

For that reason, I see the company as a speculative play that has decent risk/reward because of its beaten down share price and ability, so far, to grow revenue while slowly removing costs.

Taking a small position in the company for its asymmetric potential makes sense, but it's too early in the life of the company to get too excited over it.

It has potential, but it has yet to prove it can sustainably grow over a prolonged period of time. If it does prove that, its share price will jump, but again, so will many other tech stocks that have been under pressure.

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