LivePerson’s stock fell 40% after Roth Capital downgrades on ‘plummeting’ revenue

LivePerson (NASDAQ:LPSN) stock fell about 40% on Thursday after Roth Capital Partners downgraded the shares to Neutral from Buy following the company’s fourth quarter results and full year outlook.

The firm also lowered the price target on the shares to $2.

Analyst Richard Baldry said that the company’s revenue and AEBITDA results for the fourth quarter missed their forecasts but were fair versus its prior lowered outlook.

However, further guidance cuts leaves about $100M or 25% of its lowered revenue base missing in 2024.

Citing spiking cancellations caused by mid-2023 operational disruptions, Roth Capital is left dramatically cutting revenue and AEBITDA forecasts which leaves the company’s ability to refinance maturing convertible notes far more at risk than expected, Baldry added.

Thus Roth Capital reduced the rating and the price target to reflect rising risks.

Fourth quarter revenues of $95.5M (falling 22% year-over-year and 6% sequentially), missed Roth’s $98M forecast. More alarmingly, while Roth’s prior unguided 2024 forecast assumed minimal growth (adding $11M over a $405M base), initial 2024 guidance of $300-315M leaves a roughly $100M shortfall. Cancellations apparently spiked as a lack of focus emerged mid-2023 while former leadership was battling outside agitators for control of the company, the analyst added.

In addition, Baldry said that with the founder’s departure, ensuing turmoil apparently took such a large toll that a large subset of LivePerson’s customers decided to stop doing business with the company. Baldry views this as unprecedented in the 20+ years they have researched the space.

Baldry is concerned that while new leadership believes it can rapidly turn the tide on cancellations, there is little reason to think this may not become a downward spiral as clients watch peers abandon the company and as headcount reductions drain resources and sever relationships.

Roth’s revenue forecast falls to $311M, but the analyst’s confidence in this outlook is minimal given the first quarter 24 guidance of $79M to $83M (a run-rate of $316M-332M) argues revenues will continue to fall before possibly bouncing later in the year to reach the $300M-$315M guidance.

The analyst noted that while LivePerson is focused on slowing customer defections near-term, its financial foundation remains problematic, with $517.5M in convertible debt due by the end of 2026 (another $72M will be paid in the first quarter of 2024 to leave fourth quarter ’23 cash of $211.8M falling to $138M).

Baldry noted that the company needs to generate about $375M in cash by the end of 2026, or to at least prove to credit investors that its cash generation is adequately sized and stable enough to refinance its obligations at a reasonable cost. The analyst has little confidence in this outcome now.

LivePerson (LPSN) has a Strong Sell rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ (total 2 in this case) average rating is more positive with a Hold and so is the average Wall Street analysts’ rating, Hold.