On Thursday, DA Davidson maintained a Neutral rating on YEXT Inc. (NYSE:YEXT) while raising the price target to $5.75 from $5.50. The adjustment follows YEXT's second fiscal quarter of 2025 results, which showed a slight underperformance in consolidated revenue, though there was a modest quarter-over-quarter improvement in Direct Annual Recurring Revenue (ARR) by $1.3 million to $313.4 million.
YEXT’s disciplined expense management led to a better-than-expected EBITDA of $9.8 million, surpassing the analyst's forecast of $8.3 million. In light of the recent closure of the Hearsay acquisition on August 1st, YEXT has revised its full-year revenue outlook. The new forecast incorporates some caution due to ongoing macroeconomic challenges affecting enterprise software spending, sales cycles, and budgets.
Reflecting these updates, DA Davidson has increased its revenue estimates for YEXT for fiscal years 2025 and 2026 by 6.4% and 11.5%, respectively. This increase accounts for the addition of Hearsay's business, tempered by a slower recovery in YEXT's legacy operations for the latter half of the current fiscal year.
The firm's EBITDA projections for YEXT have also been adjusted, with a 0.5% increase for fiscal year 2025 and a 5.7% rise for fiscal year 2026. The updated guidance for the fourth fiscal quarter of 2025 implies adjusted EBITDA margins of approximately 22%. DA Davidson expects YEXT to modestly exceed this margin in fiscal 2026, even though the inclusion of Hearsay may slightly dilute the company's legacy margin structure.
The revised price target of $5.75 is based on 5.7 times the firm's fiscal year 2026 enterprise value-to-sales ratio, pro-forma, to reflect the use of $125 million in cash for the initial consideration of the Hearsay transaction that concluded on August 1st.
In other recent news, Yext (NYSE:YEXT) Inc. saw a mix of financial adjustments and strategic shifts. The company's shares were upgraded from Hold to Buy by Needham, setting a new price target at $8.00, following the company's Q2 2025 performance and the acquisition of Hearsay. Despite this, Roth/MKM adjusted its financial outlook for Yext, reducing its price target from $8.00 to $7.50, whilst maintaining a Buy rating. Yext's Q2 report showed an increase in Direct Annual Recurring Revenue (ARR) for the first time in a year, attributed to new client acquisitions.
In terms of future expectations, Yext's management projects an acceleration of ARR and expansion of EBITDA margins by the end of fiscal year 2025. 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 response to market dynamics, Yext is shifting to usage-based pricing on the third-party reseller side, aiming at increasing customer flexibility. Despite a $2 million drop in committed ARR for the reseller business, revenue remained flat.
InvestingPro Insights
InvestingPro data highlights YEXT Inc.'s strategic financial moves and market performance. With a market capitalization of $620.6 million, the company shows a commitment to shareholder value through aggressive share buybacks, as emphasized in one of the InvestingPro Tips. Additionally, YEXT's balance sheet appears robust, holding more cash than debt, which could provide a cushion against market volatility and support strategic initiatives.
YEXT's gross profit margin stands out at an impressive 78.13% for the last twelve months as of Q1 2025, underlining the company's ability to maintain profitability in its core operations. Despite a slight decline in revenue growth during the same period, the company's net income is expected to grow this year, as noted in another InvestingPro Tip. This forecast aligns with DA Davidson's outlook and may reinforce investor confidence in the company's potential for a turnaround, especially considering the recent acquisition of Hearsay.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available which delve into aspects such as earnings revisions by analysts, valuation implications on free cash flow yield, and profitability predictions for the current year. These insights could provide a more nuanced view of YEXT's financial health and future prospects.
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