On Thursday, B.Riley, a financial services firm, increased the price target for AudioEye (NASDAQ: NASDAQ:AEYE) to $10.00, up from the previous target of $8.00, while reaffirming a Buy rating on the stock. The revision follows AudioEye's announcement of its fourth-quarter results, which were released after the market closed on Wednesday. The company's adjusted EBITDA significantly surpassed both B.Riley's forecasts and the consensus estimates, despite revenue being in line with expectations.
The company has achieved a positive turn in free cash flow generation, which, coupled with the initial FY24 guidance, suggests accelerating revenue growth throughout the year. The guidance also indicates considerable operational expenditure leverage. AudioEye's adjusted EBITDA margin guidance of approximately 11.7% for FY24 was notably higher than B.Riley's earlier projection of around 5% and the consensus estimate of about 2.5%.
The positive outlook for FY24 is supported by continued growth in AudioEye's partner/marketplace channel and an increase in business momentum within the enterprise segment. This momentum is attributed to new product releases and an enhanced go-to-market team. Despite the revenue estimates for FY24 and FY25 remaining largely unchanged, B.Riley has raised its adjusted EBITDA estimates due to the better-than-expected operational expenditure leverage, which is partly a result of decreased R&D spending.
The increase in AudioEye's price target to $10 reflects a higher enterprise value to sales (EV/sales) valuation multiple, which has been adjusted to about 3.5 times for FY24. This change is in response to the company's accelerating revenue growth, significant expansion in adjusted EBITDA margins, and consistent generation of free cash flow.
It is noteworthy that the new valuation multiple still represents a roughly 50% discount compared to the approximately 7 times revenue multiple offered by Level Access in its proposed acquisition of UserWay, a competitor in the digital accessibility space, in December 2023.
AudioEye's shares saw an approximate 19% increase in premarket trading Thursday.
InvestingPro Insights
Following the upbeat analysis from B.Riley, InvestingPro data further highlights the financial landscape of AudioEye (NASDAQ: AEYE). The company's market capitalization stands at $81.53 million, showcasing the scale of its operations within the digital accessibility industry. Despite not being profitable over the last twelve months, as indicated by a negative P/E ratio of -10.63, AudioEye demonstrates impressive gross profit margins, reaching 77.48% for the same period. This margin is a testament to the company's ability to manage its cost of goods sold effectively and could be a contributing factor to the optimistic EBITDA margin guidance for FY24.
AudioEye's Price / Book ratio is currently high at 10.5, which could signal that the market has high expectations for the company's future growth or that its assets are being valued significantly by investors. While the company has experienced a strong return over the last month, with a 48.39% increase, it's important to note that InvestingPro Tips identify that short-term obligations exceed liquid assets, which may require careful financial management in the near future.
For investors looking to delve deeper into AudioEye's financial health and future prospects, there are additional InvestingPro Tips available on the platform. For example, analysts predict the company will be profitable this year, which could be a pivotal point for the company's financial trajectory. To explore these insights further, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With a total of 9 additional InvestingPro Tips available, investors can gain a comprehensive understanding of AudioEye's market position and investment potential.
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