Jefferies has revised its price target for OpenText (OTEX, Financial), cutting it from $35 to $33, while maintaining a Buy rating. This adjustment comes in the wake of OpenText reporting fiscal third-quarter revenue that fell 2% short of expectations, along with adjusting its FY25 revenue growth forecast to a mid-point reduction of 2%. The company attributes these results to delays influenced by tariffs in March, resulting in a year-over-year decline of 8% in cloud bookings. OpenText now projects FY25 revenue growth to range between 10% and 15% year-over-year. The analyst believes that the business needs to stabilize and provide more clarity on FY26 outcomes to potentially boost the stock's performance.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 11 analysts, the average target price for Open Text Corp (OTEX, Financial) is $33.64 with a high estimate of $48.00 and a low estimate of $29.00. The average target implies an upside of 28.78% from the current price of $26.13. More detailed estimate data can be found on the Open Text Corp (OTEX) Forecast page.
Based on the consensus recommendation from 13 brokerage firms, Open Text Corp's (OTEX, Financial) average brokerage recommendation is currently 2.7, indicating "Hold" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Open Text Corp (OTEX, Financial) in one year is $43.99, suggesting a upside of 68.38% from the current price of $26.125. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Open Text Corp (OTEX) Summary page.
OTEX Key Business Developments
Release Date: February 06, 2025
- Revenue: $1.27 billion in Q1, within the range of $1.25 billion to $1.3 billion.
- Adjusted EBITDA: 35% in Q1, reflecting operational efficiency.
- Adjusted EPS: $0.93, exceeding expectations.
- Cloud Revenue: $457 million, up 1.3% year over year.
- Cloud Bookings: $133.5 million, up 10.3% year over year.
- ARR (Annual Recurring Revenue): $1.052 billion, down 1.1% when adjusted for divestiture.
- GAAP Net Income: $84.4 million, with a 32% diluted EPS.
- GAAP Gross Margin: 71.7%, up from 71.4% year over year.
- Non-GAAP Gross Margin: 75.8%, reflecting investments in AI and cloud infrastructure.
- Operating Cash Flow: Negative $77.8 million, impacted by onetime tax payment.
- Free Cash Flow: Negative $117.1 million in Q1.
- Net Renewal Rate (NRR): 94% for the cloud business.
- Share Buyback: 7.72 million shares repurchased at an average price of $30.43.
- Fiscal '25 Revenue Target: $5.3 billion to $5.4 billion.
- Fiscal '25 Free Cash Flow Target: $575 million to $625 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Open Text Corp (OTEX, Financial) exceeded expectations in adjusted EBITA and adjusted EPS for Q1 fiscal 2025.
- The company reported a 35% year-over-year growth in adjusted EBITA, showcasing sustained efficiency gains.
- Open Text Corp (OTEX) achieved its largest Q1 of enterprise cloud bookings in history, up 10% year-over-year.
- The company reaffirmed its fiscal 2025 targets, projecting total revenues of $5.3 billion to $5.4 billion.
- Open Text Corp (OTEX) is making strong investments in its enterprise and SMB go-to-market strategies, enhancing customer success and strategic partnerships.
Negative Points
- Q1 total revenue of $1.269 billion was down 11% year-over-year, or down 1.8% when adjusted for the AMC divestiture.
- The company reported negative $77.8 million in operating cash flows and negative $117.1 million in free cash flows for the quarter.
- Q2 is expected to be a tougher year-over-year comparison due to the large AMC contribution and license revenue from IP rights in the previous year.
- Cloud revenue growth was subdued in Q1, with only a 1.3% increase, reflecting typical seasonality.
- The company faces challenges in the developer segment, requiring further work to drive growth in this area.
