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On Thursday, Needham maintained a Buy rating on Digimarc (NASDAQ:DMRC) shares, but the firm’s analyst Joshua Reilly reduced the price target from $40.00 to $30.00. The adjustment follows Digimarc’s Q4 earnings report, which fell slightly short of expectations. The stock, currently trading at $27.04, has experienced significant volatility, with a 27.8% decline year-to-date. According to InvestingPro data, the company maintains a healthy gross profit margin of 75.2%. Reilly highlighted several factors that prompted the revision of the full-year 2025 revenue estimates.
Digimarc has announced a 25% decrease in its run-rate operating expenses. The company is also engaging an investment bank to explore strategic alternatives, including a potential transition to a private company. This strategic review is part of Digimarc’s broader effort to realign its business model and reduce costs. InvestingPro analysis reveals the company holds more cash than debt on its balance sheet, with a strong current ratio of 4.77x, indicating solid short-term financial stability.
The company is currently in negotiations with Walmart (NYSE:WMT), although the outcome remains uncertain. As a result, the potential deal with Walmart has been excluded from Needham’s financial projections for Digimarc. The analyst pointed out that Digimarc is shifting its focus primarily towards Authentication use cases, moving away from a dual emphasis on both Authentication and Identification. This shift is a key factor in the company’s cost-saving initiatives. Despite challenging market conditions, the company has maintained 19.1% revenue growth in the last twelve months.
Digimarc’s pivot is expected to concentrate on driving near-term Annual Recurring Revenue (ARR) growth. The company is targeting specific areas such as gift cards, physical anti-counterfeit measures, and digital solutions to strengthen its ARR. These sectors represent core elements of Digimarc’s strategy to achieve sustainable growth moving forward.
In summarizing the rationale behind the new price target, Reilly noted, "We lower our price target to $30." This revised target reflects the updated revenue estimates and strategic changes underway at Digimarc.
In other recent news, Digimarc Corporation announced its fourth-quarter 2024 earnings, reporting a net loss per share of $0.40, which was an improvement from the previous year’s $0.52 loss. However, the company’s revenue for the quarter fell by 7% year-over-year to $8.7 million, missing the anticipated $10.81 million. Despite surpassing the expected earnings per share (EPS) forecast of -$0.43, the revenue shortfall led to a significant decline in investor confidence. For the full year, Digimarc’s revenue increased by 10% to $38.4 million. The company aims to achieve non-GAAP profitability by the fourth quarter of 2025. Additionally, Digimarc is exploring strategic alternatives with Goldman Sachs, including a potential going-private transaction. Analysts from Needham and Company have been inquiring about the company’s ongoing discussions with a large commercial customer and the potential for contract renewal. The company is also focusing on opportunities in the authentication market to drive future growth.
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