LPSN - LivePerson: AI-Gression Signals Caution After Earnings

2023-08-11 07:57:49 ET

Summary

• LivePerson's stock has declined by 50% since the start of 2023, despite the AI buzz surrounding the company.
• The CEO has stepped down, leaving the CFO as the interim CEO.
• LivePerson provides conversational commerce and AI-powered messaging solutions, but its financials and growth prospects are concerning.

Investment Thesis

LivePerson (LPSN) is not a stock that I recommend. Despite all the AI buzz terms this company employs, the fact of the matter is that the stock is down 50% since the start of 2023.

In fact, this performance it's quite astonishing, given that all it takes for a stock to rally in 2023 is AI in its company name. Given this context, LivePerson's CEO deemed it a good time to step down from this role. This leaves CFO John Collins taking the interim CEO role as well as his CFO role.

Indeed, one could make the claim that Starboard's close to 10% ownership in the company may have finally given the Board enough energy to get Rob LoCascio to move on. And by extension, the reason why the stock has been picking up some momentum on the back of its Q2 results.

With this context in mind, I'm neutral on this stock, but I'm eagerly watching for further developments that will lead me to upwards revise this stock to a buy.

Why LivePerson? Why Now?

LivePerson provides conversational commerce and AI-powered messaging solutions for businesses. Their platform enables companies to engage with their customers through chatbots and AI-driven interactions. LivePerson's solutions aim to improve customer support and deliver customer assistance.

LivePerson seeks to facilitate interactions between businesses and their customers.

Furthermore, LivePerson is an AI-driven company that facilitates connections between consumers and businesses through personalized interactions. Their Conversational Cloud platform combines human agents, bots, and AI to enable seamless customer engagement, offering a wide range of features including intelligent routing and sentiment analysis. Its Conversational Cloud platform resonates with brands seeking improved efficiency and enhanced customer conversations.

This is the setup. A buzzword-heavy company. But what about its underlying financials?

This is Not a Growth Company

I recognize that this will jar with many bulls, but LPSN is evidently not a growth company. What investors are hoping to see is a cheaply valued stock making a strong turnaround.

The issue for investors, though, is that banking on a turnaround is an extremely risky move. As the saying goes, the problem with turnarounds is that they seldom turn.

To further illustrate that this is not a growth company, LPSN marginally reduced its full-year revenue guidance. The company referred to this as "narrowing" its guidance, but the end result is the same, the conversational commerce company hasn't seen increased demand for its platform to enable it to increase its revenue outlook for the year, despite all the attention the world in embracing AI products and chatbots.

Looking Further Down the Income Statement

Perhaps investors will lay claim that the bull case isn't found in its growth narrative, but rather in its underlying profitability.

However, think about this:

LPSN's EBITDA was positive $13 million in Q2 2023. That's obviously a tremendous improvement from the same period a year ago.

However, at the same time, I point readers toward its free cash flow figures below.

According to my estimates, LPSN will use around $60 million of free cash flow this year. What's more, the business only holds around $70 million of convertible notes coming due in the next twelve months. Meaning that looking ahead in the next twelve months, LPSN's cash balance will drop to around $160 million. And on top of that, it will either have to pay the $70 million for the convertible debt or that debt will convert to shares further diluting shareholders.

The Bottom Line

LivePerson's recent performance has been disappointing, with the stock declining by 50% since the beginning of 2023, despite investors' clamor for AI-driven solutions.

While there's a positive EBITDA improvement, concerns arise from the company's substantial utilization of free cash flow. This is particularly concerning when considering its upcoming convertible notes, which might lead to further dilution if not managed well ahead of time.

This complex setup suggests a cautious approach while closely monitoring LivePerson's path forward.

For further details see: