Wednesday, December 13, 2017

A current AIM International Fund Holding: Nice Ltd. (NICE) by: Jack Gorski "Nice Owning Nice"

NICE LTD (NICE, $86.24): “Nice Owning Nice”

By: Jack Gorski, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

NICE Ltd (NASDAQ: NICE) is an application software company that provides solutions that manage and analyze transactional data and other multimedia content for third party customers.

• Management is optimistic about their broad solution suite which continues to gain traction.

• The company recently released their CXone platform that is already showing signs of high success, providing potential for large revenue growth in the future.

• Transition to the cloud is becoming extremely popular for workforce optimization and NICE Ltd is positioned to capture revenues from this conversion.

Key points: NICE Ltd can expect to benefit from the release of their CXone platform which is gaining tractions with many large deals being reported this last quarter. This new cloud-based platform provides a combination of three products in one single platform. These include the Workforce Optimization, InContact cloud contact center capabilities, and customer analytics. Not many of NICE’s competitors are offering a similar product package, suggesting that this new platform could attract new customers and give them an advantage over their competitors.

NICE’s cloud business is continuing to remain strong and producing double digit growth YoY. The growth of the cloud business is partially driven by the acquisition of InContact which is also included in the CXone platform. The product portfolio provided as part of their cloud business segment is well regarded by their customers and continues to provide opportunity to grow market share in a largely unpenetrated market.

With the growth of cloud-based contact center services and recurring revenue, NICE is likely to double its sales beyond $2 billion. With the help of its outstanding sales force, the company is able to cross-sell its products between existing users and expand its reach well outside the United States which currently represents ~71% of sales.

By far the most threatening risk to be aware of when holding this stock is the impact of Amazon Connect. Amazon Connect is largely directed at smaller companies, while NICE has shown to target larger enterprise companies. The products are also quite different as Nice has more complex call routing algorithms to better optimize workflows, while Amazon’s Connect is grossly limited to voice channel. It is believed that it will take some time for Amazon to develop a cross-channel product that will be able to compete with that of NICE, yet this is a concern that is not to be taken lightly and should be monitored moving forward.

What has the stock done lately?

The stock has performed exceptionally well over the past 3 months, up about 16% to $86.24. The stock’s recent growth can be attributed to the success of the CXone platform which is capturing many deals and thus providing ample opportunity to grow revenue. NICE also had an upsetting earnings surprise in which they missed by over 50%, yet the price continued to rise. Earnings estimates were revised forecasting greater expectation in the future. The market must trust these revisions as the stock has continued to climb as is currently trading at its 52-week high.

Past Year Performance: NICE’s value has shown strong growth this year, up 30.37% YTD. Consensus estimates place the target price for NICE at $86.00, but strong growth potential in their cloud business, especially with their new CXone platform could suggest that this stock is still undervalued.


My Takeaway


NICE Ltd continues to show room for expansion as their cloud services continue to grow and capture market share. Through the offering of their CXone platform, they are better able to distinguish themselves from their competitors by offering a unique product package that their competitors are unable to match. For this reason, I believe NICE can expect to see favorable revenue growth moving forward. Their cloud services growth is also driving gross-margin expansion which is already better than many of their comps. For these reasons I suggest holding NICE as it still has potential to expand in its unpenetrated market, while it is crucial to keep an eye on the advancements of Amazon Connect.

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