On Tuesday, UBS analyst Alex Kramm upgraded Forge Global Holdings Inc (NYSE:FRGE) stock from Neutral to Buy, setting a price target of $3.00. The upgrade reflects UBS's growing confidence in the company's core business of trading private company shares.
The analyst cited significant year-over-year transaction volume growth and a positive forecast for the future, expecting a 65% increase in volume and over a 17% rise in net revenue for the fiscal year 2024.
Forge Global's recent announcement of a cost reduction plan was also a key factor in the upgrade. This plan is anticipated to lead to an adjusted EBITDA profit by 2026.
UBS's outlook on FRGE is further bolstered by the belief that the secondary trading market for private company shares will continue to experience structural growth.
The firm predicts that long-term volumes could grow at approximately 20% annually due to improved platform access, increased transparency, and higher turnover velocity.
The analyst's comments highlighted the improvements in FRGE's core business and new cost savings initiatives that present a path to profitability. With the trading environment showing signs of improvement and the company's transaction volume up 180% year-over-year in the most recent quarter, the analyst sees a strong upward trajectory for Forge Global.
Despite the optimistic outlook, UBS cautioned that FRGE represents a high risk/reward situation and may not be appropriate for all types of investors. This statement underscores the inherent uncertainties in the market for trading shares of private companies, which can be subject to significant fluctuations and risks.
The upgrade by UBS suggests a positive view of Forge Global's strategic initiatives and market position as it aims to capitalize on the growing trend of secondary trading in private company shares. The company's focus on cost reduction and volume growth appears to be aligning with market expectations for the near future.
In other recent news, Forge Global has reported its fifth consecutive quarter of revenue growth in Q2 2024, showing a 15% increase over the previous quarter and a 32% rise year-over-year. Notably, the marketplace revenue experienced a surge by 103% from the same period last year.
As part of a strategy to improve margins, the company initiated a cost reduction plan, including an 11% cut in headcount costs, which is expected to result in annual savings of $11.3 million.
CEO Kelly Rodriques expressed optimism about the momentum in the private market and anticipates Forge Global to reach breakeven adjusted EBITDA by 2026. The company is committed to investing in its next-generation platform while realizing these cost savings.
Other developments include a decrease in the bid-ask spread to 6.4%, the narrowest since Q3 2021, and the number of companies represented by IOIs reaching a record high of 551 in Q2.
Significantly, IPO proceeds for 2024 have already surpassed the total for 2023, with the number of IPOs up 37% year-to-date. Late-stage venture funding in the U.S. saw a 61% increase in Q2 compared to the same quarter last year. These are the recent highlights for Forge Global.
InvestingPro Insights
Amidst the optimism surrounding Forge Global Holdings Inc (NYSE:FRGE), the latest data from InvestingPro provides a nuanced picture of the company's financial health and market performance. With a current market capitalization of $256.42 million, FRGE's price-to-book ratio stands at 1.04 as of the last twelve months leading up to Q2 2024, which indicates that the market values the company at a level close to its book value. Despite a challenging trading environment, FRGE has managed to grow its revenue by 21.91% over the same period. This growth is a positive sign and aligns with UBS's confidence in the company's transaction volume and net revenue increase.
However, InvestingPro Tips caution investors about FRGE's profitability challenges. Analysts have noted that the stock has experienced significant volatility, with price movements reflecting this over the past week and extending over the last six months. Moreover, analysts do not expect the company to be profitable this year, which is consistent with the high risk/reward scenario outlined by UBS. It's noteworthy that while FRGE does not pay dividends, its liquid assets exceed short-term obligations, providing some financial stability in the near term.
For investors seeking a deeper analysis, InvestingPro offers additional tips on FRGE, available at: https://www.investing.com/pro/FRGE. These insights can provide further guidance on the stock's potential and risks as the market for trading shares of private companies evolves.
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