On Thursday, Yext Inc . (NYSE:YEXT) shares received an upgrade from a Hold to a Buy rating by Needham, with a new price target established at $8.00. This adjustment comes in the wake of Yext's second-quarter fiscal year 2025 performance, which provided clearer insights into the company's direction post-acquisition of Hearsay.
The management at Yext has been recognized for their ability to consistently generate incremental leverage in the business model. According to the firm's analysis, there is considerable potential for material margin expansion in the next 12 to 18 months. This is anticipated despite the initial dilutive impact of integrating the newly acquired asset.
Yext's revenue growth has been a point of concern, but the firm's updated outlook for the second half of fiscal year 2025 is deemed to be appropriately conservative. Moreover, the possibility of organic growth acceleration in fiscal year 2026 is on the horizon, thanks to potential cross-selling opportunities stemming from the Hearsay acquisition.
The financial evaluation of Yext also plays a role in the upgraded rating. With the company's valuation currently at 0.8 times enterprise value to fiscal year 2026 sales and 3.9 times enterprise value to fiscal year 2026 EBITDA, Needham views the risk/reward profile for investors as attractive at the present levels. This assessment underpins the decision to raise the stock to a Buy rating and set a higher price target.
In other recent news, Yext Inc., a leader in AI search, reported softer-than-expected top-line performance in its second-quarter earnings, despite a significant upside to its EBITDA. This is according to Roth/MKM, which recently adjusted its financial outlook for Yext, reducing its price target on the company's shares from $8.00 to $7.50, while maintaining a Buy rating.
Yext's second quarter also saw an increase in Direct Annual Recurring Revenue (ARR), marking the first rise in this metric in a year, thanks to new client acquisitions.
In the future, Yext's management projects an acceleration of ARR and expansion of EBITDA margins by the end of fiscal year 2025, with a potential $100 million EBITDA run rate and a free cash flow exceeding $90 million. The company's recent acquisition of Hearsay Systems is expected to contribute to this growth, offering opportunities for upselling and consolidation. However, the company provided a conservative outlook for ARR growth, expecting stability to modest increases.
In line with market dynamics, Yext is shifting to usage-based pricing on the third-party reseller side, a move aimed at increasing customer flexibility. Despite a $2 million drop in committed ARR for the reseller business, revenue remained flat. These are the latest developments in Yext's strategic transformation, which emphasizes flexibility and customer-centricity in its approach to growth.
InvestingPro Insights
As Yext Inc. (NYSE:YEXT) embraces the positive outlook from Needham's upgrade, InvestingPro data and tips shed additional light on the company's financial health and market position. The management's commitment to the business is evident as they have been actively buying back shares, signaling confidence in the company's future (InvestingPro Tip). Moreover, Yext's balance sheet strength is underscored by holding more cash than debt, providing a cushion for operational flexibility and growth investments (InvestingPro Tip).
Analyzing the company's financial metrics, Yext's market capitalization stands at $620.6 million, reflecting its current market valuation. Despite a negative P/E ratio of -101.67, indicating that the company is not currently profitable, the gross profit margin is impressive at 78.13% for the last twelve months as of Q1 2025. This margin showcases the company's ability to maintain a strong profitability on its core products or services. Furthermore, Yext's revenue for the same period was $400.86 million, although it experienced a slight decline of 0.16% (InvestingPro Data).
Investors considering Yext may find additional insights by exploring the full range of 10 InvestingPro Tips available, which include expectations of net income growth this year and a valuation that implies a strong free cash flow yield. While the company does not pay a dividend, analysts predict profitability in the current year, which could signal a turning point for Yext's financial performance (InvestingPro Tips).
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