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On Wednesday, Needham maintained its Buy rating on AudioCodes (NASDAQ:AUDC) and increased the price target to $12.50 from the previous $11.00. Currently trading at $10.66, InvestingPro analysis suggests the stock is undervalued compared to its Fair Value. The decision followed AudioCodes’ release of its fourth-quarter financial results for 2024, which presented a combination of achievements and minor setbacks.
AudioCodes reported revenues that were slightly lower than expected, but earnings per share (EPS) exceeded forecasts by $0.14, attributed primarily to a tax benefit recognized during the quarter. With a robust gross profit margin of 65.46% and maintaining profitability over the last twelve months, the company’s financial performance remains solid. The company’s revenue breakdown showed a 44/56 split between product (capital expenditure) and services (operational expenditure). Additionally, the company’s transition to a subscription model showed positive signs, with live Annual Recurring Revenue (ARR) subscriptions increasing by 35% year-over-year to $65 million. Moreover, the business related to Microsoft (NASDAQ:MSFT) grew by 13% year-over-year, marking the strongest growth in over a year.
The company’s strong subscription bookings contributed to a record backlog at the end of the fourth quarter. With a healthy current ratio of 2.03 and operating with moderate debt levels, AudioCodes maintains a strong financial position. Looking ahead, AudioCodes introduced its fiscal year 2025 revenue and adjusted EBITDA guidance, anticipating $250 million in revenue, which translates to a 3% year-over-year increase, and $36 million in adjusted EBITDA, up 15% from the previous year.
The company is also looking forward to further momentum in its subscription offerings and the launch of new cross-platform Voice AI products. These new products, including integrations with Zoom (NASDAQ:ZM), are expected to support a return to double-digit growth rates. While the exact timeline for this growth is not specified, the analysts at Needham are optimistic about the company’s increasing profitability metrics.
In light of these developments, Needham has updated its fiscal year 2025 estimates for AudioCodes and introduced projections for fiscal year 2026, leading to the raised price target. The firm’s analysts believe that the company’s strategic moves and the strength of its subscription business will drive its financial performance going forward.
In other recent news, AudioCodes, a unified communications market player, reported its Q3 results with a slight decrease in total revenues to $60.2 million, a 0.1% drop from the previous quarter. Despite this, services revenue experienced a 1.7% growth, reaching $32.5 million and accounting for 54% of the total revenues. Notably, the firm’s Live Annual Recurring Revenue (ARR) from subscriptions rose by 40% year-over-year, and its subscription-driven backlog saw a significant increase of 150% compared to the same period last year.
Meanwhile, financial services firm Needham revised its outlook for AudioCodes, reducing the price target on the company’s shares to $11.00 from $14.00, while maintaining a Buy rating. This adjustment was due to the company’s ongoing transition from a license-based to a subscription-based sales model, which has led to a tempered revenue growth outlook.
Furthermore, AudioCodes has been focusing on its strategic growth in the conversational AI segment and transitioning towards a UCaaS and CCaaS model. The company expects its conversational AI revenue to surpass $10 million and projects double-digit growth in its Microsoft business by 2026. These recent developments indicate AudioCodes’ commitment to evolving its business model and exploring new growth avenues.
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