By: Bill Spencer — July 20, 2019
Small-Cap Saturday - Here's an A.I. Leader Disrupting a $1.6 Trillion Market
Good morning. "Big Bill" here.
Welcome to Small-Cap Saturday -- "Serving Your Investing Needs for Almost 1/100th of a Decade".
First time dropping in? Great! Your timing couldn't be better.
Because today I have a $30 stock that just broke a new high, and that I think makes a relatively quick move to $40.
This company has one key feature I need to see when hunting for my next big investment in a small-cap company: They have two flagship products that put them in the lead to address an immediate market worth $200 billion dollars.
After breaking out on July 1st, its stock has climbed more than 17%. In the past 18 months, it's gained more than 190%.
And it has something else I want to see in a small-cap investment...
Friends In High Places
Institutional buying drives most of a stock's advance. And net institutional inflows into this stock are accelerating.
In 2017 funds bought $106.21 million more of the stock than they sold -- a 1.5x bull-to-bear multiple. That figure increased to 2.11x in 2018 for net inflows of $235 million.
Going into the second half of 2019, that multiple stands at 3.3x, more than twice where it was just two years ago.
So now here's...
Today's Small-Cap Saturday Standout
LivePerson (NASDAQ: LPSN), a $2.1 billion company is a leader in an industry known as "Conversational Commerce".
Their products, LiveEngage and Maven, are doing for consumers what Novocain did for dentistry. They're eliminating one of the great pain-points of modern life – having to waste countless hours “on hold” with businesses and other organizations.
By combining proprietary AI and "messaging" technology in a single award-winning platform, this company gives millions of people a faster, more satisfying way to deal with: stores and banks... airlines and credit card companies... car dealers and automotive service centers... schools, universities and insurance companies... Businesses of every size and shape.
According to Bloomberg, "Consumers messaging Amex, ordering beer via text message at a Phillies baseball game or asking a Lowe’s sales rep questions online are already using LivePerson's platform".
And according to LivePerson, more than 50,000 agents in 17,000+ automotive businesses use its platform. One report showed that out of every four messaging leads that comes in, one converts to a sale.
A $1.6 Trillion Opportunity
Last year U.S. retail sales came to $5.35 trillion. Yet just 14.3% of that happened online. That means internet retailers are still leaving more than $4 trillion on the table.
Why? Because the online customer-to-business experience simply doesn't work. (In the past month or so, how much of your time has been wasted on hold, trying to get ONE SIMPLE QUESTION answered?)
"A consumer visits a website looking for answers, either can’t find it or gets confused, and has to call the company instead," CEO Robert LoCascio told TechCrunch. "This has become a very expensive epidemic. Today, about 268 billion calls are fielded by contact centers each year — at a cost of $1.6 trillion."
LivePerson's platform allows you to send a text message directly to a company, like you'd do to ask a friend or family member a question.
"Instead of calling my bank, I can send a message that says, 'Hey, I'm having a problem with my credit card. Can you check it out and get back to me?' That changes the interaction from a transaction to a connected experience".
"We're riding the internet's third wave, says LoCascio. "The first was organizing the world's information through search -- i.e., Google. The second was connecting people with people, so Facebook. The third wave is how we connect with businesses."
Running The Numbers
LivePerson reported Q1 financial results on May 2nd. The company generated record revenue of $66.4 million, up 14% since the same quarter a year ago. The company also saw double-digit growth across both of its key segments -- 'Consumer' and 'Business-to-Business (B2B)'.
In its mid-market 'Enterprise' segment, LivePerson's average revenue per user (ARPU) increased 24% year over year to $300,000 - the fourth consecutive quarter of growth better than 20%.
Adjusted EBITDA for the first quarter of 2019 was a loss of $0.05 per share, an improvement as compared to $0.07 per share in Q1 2018... while LivePerson's cash balance increased by $171 million to $238 million, (up from $66 million at the end of 2018).
On its May 2nd call with investors, the CEO said, "The Company continues to expect 2019 revenue in a range of $284.5 million to $291.5 million, up 14% to 17% year over year". And the company expects 20% growth by the fourth quarter of 2019 and at least 20% growth in 2020.
LPSN Passes the "True Market" Test
At True Market Insider, share price does the talking. LPSN has been on a steep uptrend since around early February 2016, when the previous bull market began.
It broke out to new highs on heavy volume earlier this month, gaining just over 17% in two weeks. But don't worry -- you're not coming late to this party. We'll likely see more growth ahead.
One reason involves a time-tested technical analysis principle: The bigger the base, the bigger the breakout.
Here's a 1-year chart.
We see that, after gaining 67% between January and March, LPSN spent four months consolidating and building a new base -- more than enough to propel the stock higher.
Some Concluding Thoughts and Catalysts
With LivePerson you're buying a market leader in a hot sector (the Internet sector's BPI chart is on Bull Confirmed status -- the strongest designation).
And this is no fly-by-night enterprise. LivePerson has been around for 22 years and has positioned itself to dominate its market.
Another key component I look for before making a sizable investment in a small-cap is a savvy management team. Much like Amazon, where Founder Jeff Bezos has grown his baby to be the largest firm on earth...
LPSN's father, LoCascio, is now one of the longest-serving CEOs in the internet software space. And speaking of Amazon, Alex Spinelli, the company's Chief Technology Officer served as head of Amazon’s “Alexa” division for five years.
This is a team and a firm that knows how to execute. As LoCascio tells investors, “It is clear that a large new economy is developing around Conversational Commerce and we hope to be one of the largest companies servicing this new market."
Keep It Small,