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.
