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On Thursday, Goldman Sachs adjusted its outlook on shares of E2open Parent Holdings (NYSE:ETWO), reducing the stock's price target to $3.50 from the previous $4.00, while still maintaining a Buy rating. The firm's analyst noted E2open's second-quarter fiscal year 2025 revenue and adjusted EBITDA surpassed expectations, but total revenue fell short due to weaker professional services revenue. This shortfall was attributed to increased deal scrutiny and unbilled customer success activities.
E2open's management has revised its full-year guidance downward, with total revenue now projected to be $612.0 million at the midpoint, a decrease from the earlier estimate of $637.5 million. Adjusted EBITDA is also expected to be at the lower end of the previous guidance range. The updated professional services revenue guidance suggests an approximate 18% year-over-year decline and marks the lowest since the fiscal year 2021, before the BluJay acquisition.
The company has experienced three consecutive years of downgraded professional services guidance during the year compared to the original projections. However, E2open saw a sequential improvement in bookings and retention rates in the quarter, although the pace was slower than management had anticipated. The improvement in bookings was partly driven by demand for E2open's Logistics and Global Trade solutions.
Looking ahead, the company's management anticipates a year-end net leverage ratio of around 4.0 times for fiscal year 2025, which is slightly above the previous expectation of less than 4 times as reported in the first quarter of fiscal year 2025. In light of these developments, Goldman Sachs has revised the 12-month price target for E2open to reflect the updated financial outlook and market conditions.
In other recent news, E2open Parent Holdings reported mixed results in its recent earnings report. The company's subscription revenue reached $131 million and Adjusted EBITDA was at $55 million, however, it fell short of total revenue projections by $4 million. In response to ongoing challenges in bookings and professional services, E2open has revised its total revenue forecast for FY25 downward by $26 million.
Despite these challenges, Loop Capital, which maintains a Hold rating on E2open, has noted the company's optimism about improving retention rates and efforts to revitalize the sales structure.
In terms of future expectations, E2open's management, as well as Loop Capital, anticipate an improvement in services revenue in the second half of FY 2025. They also project Q3 subscription revenue to be between $130 million and $133 million, with full-year guidance revised to $526 million to $532 million. The company expects to maintain a gross profit margin of 68% to 70% and generate strong positive adjusted operating cash flow.
Overall, these recent developments suggest that while E2open is facing some difficulties, there are also signs of potential improvement. Both the company's management and Loop Capital express cautious optimism for the future, with the latter stating that E2open is in the early stages of a multi-year rebuilding process.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on E2open Parent Holdings' financial situation. The company's market capitalization stands at $1.1 billion, with a revenue of $625.6 million for the last twelve months as of Q1 2025. This represents a revenue decline of 4.04% over the same period, aligning with the challenges highlighted in Goldman Sachs' analysis.
InvestingPro Tips reveal that E2open is not currently profitable over the last twelve months, which is consistent with the company's revised guidance and the analyst's concerns. However, an encouraging InvestingPro Tip suggests that analysts predict the company will be profitable this year, potentially signaling a turnaround in E2open's financial performance.
It is worth noting that E2open does not pay a dividend to shareholders, which may be a consideration for income-focused investors. For those seeking a more comprehensive analysis, InvestingPro offers 12 additional tips that could provide deeper insights into E2open's financial health and future prospects.
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