LivePerson Inc: Profitability worries in a crowded operating landscape

New York City-headquartered LivePerson (NASDAQ:LPSN) is popularly known to the market as the developer of LiveEngage, a software platform that allows consumers to engage with brands on popular platforms like WhatsApp, iOS Messages, Facebook Messenger, on websites or on the brands' apps for iOS and Android operating systems, among its other software solutions.

However, with no entry barriers to the company’s highly crowded operating landscape, competition is rising for the conversational commerce software firm making it a bear case, according to a new report. 

In its recent analysis of LivePerson’s fundamentals, US-based Vision Research (VR) opines that despite being the first mover in the industry, as early as 1995, the company is rapidly losing market share and its customers are switching over to competitors. 

There also the issue of perception and of competitors themselves catching up. “LivePerson is often mistaken for an AI company, when it doesn’t have any AI technology of its own, while rival players like Twilio are developing and investing in in-house messaging based consumer engagement solutions. 

While operating in a highly “commoditized” sphere, VR opines that LivePerson’s current management appears to be out of its depth, “lacks innovation” and is prone to “copycatting” industry trends. 

Nonetheless, LivePerson registered 142 deals in Q2, an uptick of 50% on an annualised basis, driven by the addition of 74 new and 68 existing customer contracts. For the trailing 12-month average revenue per enterprise and mid-market customer rose by ~20% in Q2 to a record $310,000, up from ~$255,000 in the equivalent prior-year period.

But the company’s net loss for Q2 2019 came in at $24m or $0.38 per share, compared to a net loss of $8.3m or $0.14 per share in Q2 2018. Adjusted operating loss for the second quarter of 2019 was $9.1m, as compared to adjusted operating income of $0.4m in the second quarter of 2018.

It is not just the numbers that appear unconvincing, VR notes: “Operating costs are growing faster than revenues, and despite forecasting accelerating growth for next several years, the management doesn’t expect profitability. 

Additionally, “management's frequent changing of key performance metrics and use of non-GAAP measure to obfuscate underlying losses cast doubts on its credibility.”

VR’s overall assessment is that the company presents a bear case, and for the bulls, the research firm has a simple message: “Bulls seem to be overlooking losses for an extend period and hoping for a turnaround, but likely not correctly factoring in industry-commoditization.”

For more, download and read Vision Research's full report on the fundamental investment case for LivePerson Inc, via ReachX’s research marketplace.