03-14-2021, 10:05 PM
AudioEye (AEYE) DD - The digital accessibility SaaS leader
<!-- SC_OFF --><div class="md"><h1>Overview</h1> <p>AudioEye is a SaaS company operating in the niche and fast-growing digital accessibility industry. It provides a software solution for businesses to make their websites accessibility compliant using AI / machine learning without modifying website design or code. This helps companies steer clear of digital accessibility lawsuits (which have been sky-rocketing in recent years) for not providing a suitable website for persons with disabilities. AudioEye also has a help-desk for customers and provides legal support in case a digital accessibility lawsuit occurs. </p> <p>Past and present customers include Uber, Samsung, Kia, Tommy Hilfiger and Square.</p> <h1>Management and employee satisfaction</h1> <p>The company was founded by Jim Crawford and Sean Bradley in 2005. Jim Crawford is no longer involved with the company and Sean Bradley still owns shares of the company (very minor stake), but is no longer on the Board or on the Executive Team (no involvement with the direction of the company).</p> <p>The current Chairman of the Board and third-largest individual shareholder is Dr. Carr Bettis. He has been at the forefront of the company’s operations in recent years. He’s a serial entrepreneur with previous experience in developing financial science and technology innovations businesses that have been acquired. He received his Ph.D. from Indiana University and is a former tenured professor and researcher. </p> <p>The current interim-CEO and largest individual shareholder (through Sero Capital) is David Moradi. He is an entrepreneur and founder and CEO of Sero Capital, a private investment firm focused on growth opportunities in the technology sector.</p> <p>Recent notable hires include Rob Ulveling as Chief Business Officer (former Product Marketer at Pinterest and Facebook) and Zach Okun as Chief Product Officer (former Product Manager at Facebook and Oracle).</p> <p>The company has a 3.4 rating on Glassdoor (24 reviews), 44% approval of the Interim-CEO and the reviews highlight the employees alignment and approval of the company’s mission. However, there are many complaints that the company is too profit-focused and that the recent executive team reshuffle has brought along plenty of unwelcome changes and layoffs. Employees speculate the company is being prepared for a possible buy-out or acquisition.</p> <h1>Industry and competition</h1> <p>AudioEye is the largest and only publicly traded company specialized on providing B2B digital accessibility solutions.</p> <p>Notable competitors include Siteimprove, accesiBe, Silktide and other small private businesses.</p> <h1>Moats and competitive advantages</h1> <p>AudioEye offers the most complete and comprehensive solution for websites to become accessibility compliant. Their use of machine learning and AI is a big moat when measured up against the technology of competitors. They currently have around 32,000 customers, representing a 370% increase over 2019, which further exemplifies their business strength and relevance.</p> <p>In an industry with little serious competition, AudioEye’s current financials, brand, customer base and technology represents a huge advantage over competitors. There’s also the advantage that this industry is still small enough that none of the big tech players will bother with it just yet.</p> <h1>Areas of growth</h1> <p>The digital accessibility industry is still in its early-stages. AudioEye should remain at the forefront of any industry tailwinds and grow accordingly. There’s a ton of potential internationally for their suite of products as more and more countries crack down on and further scrutinize digital accessibility. </p> <p>A possible expansion into App accessibility could provide a huge catalyst for growth for the company, in my opinion.</p> <p>It is estimated 15% of the world’s population has some sort of disability, so you can probably see how huge the market opportunity is for a company that provides a suite of products like this.</p> <p>If AudioEye continues investing into AI and machine learning, they could develop superior technology that would improve margins exponentially, facilitate rapid expansion and possibly be used for other product suites or applications.</p> <h1>Potential headwinds</h1> <p>The biggest threat for AudioEye would be a big tech company suddenly becoming interested enough in the industry and deciding to launch a competitor (specially if they have good AI technology to use as leverage). Although I don’t see it happening any time soon, it would be fatal for a company like AudioEye at this stage.</p> <p>Also, there are some reports that AudioEye’s technology isn’t that complex and that their recent growth and adoption is mostly based on a culture of fear and ignorance businesses have developed to avoid getting sued. There might be some truth to this, and if a scandal broke out discrediting the technology, dragging adoption down, AudioEye as a company would become worthless pretty quickly.</p> <p>Tech experts argue that AudioEye’s customers could easily develop the same solution in-house if they really wanted to and without too much hassle and/or added cost.</p> <h1>Institutional and insider ownership, short interest</h1> <ul> <li><p>Institutional ownership sits at about 15-16%.</p></li> <li><p>Insider ownership and major individual shareholders: </p></li> <li><p>David Moradi, including indirect ownership through Sero Capital (Interim-CEO): 3,119,600 shares (29.13% of total shares outstanding)</p></li> <li><p>Jamil Tahir, including indirect ownership through TurnMark Capital (Board Member): 229,564 shares (2.14% of total shares outstanding)</p></li> <li><p>Dr. Carr Bettis (Executive Chairman): 155,773 shares (1.45% of total shares outstanding)</p></li> <li><p>Sachin Barot (CFO): 134,834 shares (1.26% of total shares outstanding)</p></li> </ul> <p><strong>- Total % of outstanding shares held by insiders: 35-36%.</strong></p> <ul> <li>Short interest is currently 20.28% of the total floating shares</li> </ul> <h1>Earnings</h1> <p><strong>From the latest earning report:</strong></p> <ul> <li>Quarterly net revenue was $5.6 million, up 57% YoY</li> <li>Monthly Recurring Revenue (MRR) was $1.9 million, up 58.33% YoY</li> <li>Quarterly gross profit margin of 73%, up from 66% YoY</li> <li><p>Quarterly net loss of $3 million, up 114.29% YoY</p></li> <li><p>Full-year net revenue was $20.50 million, up 90% YoY</p></li> <li><p>Full-year gross profit margin of 71%, up from 59% YoY</p></li> <li><p>Full-year net loss of $7.2 million, down 7.69% YoY</p></li> <li><p>Guidance for full-year 2021 of revenue between $30 to $32 million, representing a 46.34%-56.10% YoY increase over 2020</p></li> <li><p>Spent $2,134 million of quarterly revenue (38.11% of total) and $4,138 million of full-year revenue (20.19% of total) on Stock Based Compensation expenses, which is the principal cause for the widening quarterly EPS loss and the lackluster full-year 2020 EPS improvement.</p></li> <li><p>Spent $430,000 of quarterly revenue (7.68% of total) and $1.230 million of full-year revenue (6% of total) on Research and Development expenses, which is unusually low for a SaaS company (specially one with AI and machine learning components).</p></li> </ul> <h1>Balance Sheet</h1> <ul> <li>$9,095 Million in Cash and Cash Equivalents </li> <li>$14,631 Million of Total Current Assets</li> <li><p><strong>$18,254 Million of Total Assets</strong></p></li> <li><p>$9,015 Million of Current Liabilities (including $6,328 Million of Deferred Revenue)</p></li> <li><p>$1,083 Million of Long-Term Debt</p></li> <li><p><strong>$10,620 Million of Total Liabilities</strong></p></li> </ul> <h1>Valuation metrics</h1> <ul> <li>Market cap: $305.10 Million</li> <li>Total shares outstanding: 10.71 Million</li> <li><strong>PE Ratio: N/A</strong></li> <li>P/S Ratio: 14.88</li> <li>P/B Ratio: 39.98</li> <li>D/E Ratio: 0.17</li> <li><strong>Negative Free Cash Flow (estimated): ($3.5-4 Million)</strong></li> <li><strong>PEG Ratio: ≈ N/A</strong></li> </ul> <h1>Principal financial metrics of closest competitor (all competitors are private companies, so I’m comparing it to a smaller-cap, more mature SaaS just for reference. AudioEye should, ideally, achieve gross margins on the level of PagerDuty at some point):</h1> <p><strong>NYSE: PD</strong></p> <ul> <li>Market Cap: $3.461 Billion</li> <li>Revenue: $210 Million</li> <li>Gross profit margin: 86.20%</li> <li>PS Ratio: 16.48</li> </ul> <h1>Price action</h1> <p>AudioEye currently sits 35.77% below its 52-week high. It’s a highly volatile stock and has corrections in the double digits on a semi-frequent basis. Only fit for investors with a stomach for short and medium term volatility and extremely high risk tolerance.</p> <p>Current valuation is by no means a bargain and the stock is probably close to fair value or maybe a tad overvalued due to several fundamental risks.</p> <h1>Pros</h1> <ol> <li>Fast-growing, possibly huge industry in its infancy and this company has the strongest moat and resources to grab up major market share in years to come.</li> <li>Interim-CEO has a ton of skin in the game with 29% total ownership.</li> <li>50% insider and institutional ownership (with growing institutional ownership and interest).</li> <li>90% revenue growth, 71% gross profit margin. Rapidly improving margins and good guidance for 2021.</li> <li>Committed to becoming cash-flow positive this year and will probably become Non-GAAP profitable this year as well.</li> <li>Healthy balance sheet with little debt and enough net cash to sustain the current cash burn for at least 2 more years without diluting shareholders any further.</li> <li>Encouraging recent hires of talent from Facebook and Pinterest.</li> </ol> <h1>Cons</h1> <ol> <li>Extreme levels of Share Based Compensation expenses is a huge problem in my opinion. It’s dragging very heavily on EPS and Free Cash Flow. The company should aim to pull way back on these expenses at this stage.</li> <li>It’s urgent that the company generates positive Free Cash Flow this year. Things could get nasty otherwise.</li> <li>Lack of continued executive leadership and non-involvement from the founders is a problem.</li> <li>The company is being led by Private Equity firms and owners. I wouldn’t be surprised if they’re working towards the company being sold so they can cash out. There’s also a risk that all of these people could cash out at any time and leave the company stranded, diluted and with no leadership to speak of.</li> <li>Not profitable, not cash flow positive.</li> <li>Burning $3.5-4 million in cash per year with a net cash position of $9 million. </li> </ol> <p>Disclaimer and conclusion: I’m cautiously bullish on AEYE at this point and have a small exploratory position. I truly believe the market opportunity and projected growth for the industry they’re in is insane, but there are several fundamental risks and challenges with the company that need to be acknowledged. Current valuation is probably fair, but not a bargain. Invest at your own caution and discretion.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/elvita12345"> /u/elvita12345 </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/m4qnp9/audioeye_aeye_dd_the_digital_accessibility_saas/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/m4qnp9/audioeye_aeye_dd_the_digital_accessibility_saas/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><h1>Overview</h1> <p>AudioEye is a SaaS company operating in the niche and fast-growing digital accessibility industry. It provides a software solution for businesses to make their websites accessibility compliant using AI / machine learning without modifying website design or code. This helps companies steer clear of digital accessibility lawsuits (which have been sky-rocketing in recent years) for not providing a suitable website for persons with disabilities. AudioEye also has a help-desk for customers and provides legal support in case a digital accessibility lawsuit occurs. </p> <p>Past and present customers include Uber, Samsung, Kia, Tommy Hilfiger and Square.</p> <h1>Management and employee satisfaction</h1> <p>The company was founded by Jim Crawford and Sean Bradley in 2005. Jim Crawford is no longer involved with the company and Sean Bradley still owns shares of the company (very minor stake), but is no longer on the Board or on the Executive Team (no involvement with the direction of the company).</p> <p>The current Chairman of the Board and third-largest individual shareholder is Dr. Carr Bettis. He has been at the forefront of the company’s operations in recent years. He’s a serial entrepreneur with previous experience in developing financial science and technology innovations businesses that have been acquired. He received his Ph.D. from Indiana University and is a former tenured professor and researcher. </p> <p>The current interim-CEO and largest individual shareholder (through Sero Capital) is David Moradi. He is an entrepreneur and founder and CEO of Sero Capital, a private investment firm focused on growth opportunities in the technology sector.</p> <p>Recent notable hires include Rob Ulveling as Chief Business Officer (former Product Marketer at Pinterest and Facebook) and Zach Okun as Chief Product Officer (former Product Manager at Facebook and Oracle).</p> <p>The company has a 3.4 rating on Glassdoor (24 reviews), 44% approval of the Interim-CEO and the reviews highlight the employees alignment and approval of the company’s mission. However, there are many complaints that the company is too profit-focused and that the recent executive team reshuffle has brought along plenty of unwelcome changes and layoffs. Employees speculate the company is being prepared for a possible buy-out or acquisition.</p> <h1>Industry and competition</h1> <p>AudioEye is the largest and only publicly traded company specialized on providing B2B digital accessibility solutions.</p> <p>Notable competitors include Siteimprove, accesiBe, Silktide and other small private businesses.</p> <h1>Moats and competitive advantages</h1> <p>AudioEye offers the most complete and comprehensive solution for websites to become accessibility compliant. Their use of machine learning and AI is a big moat when measured up against the technology of competitors. They currently have around 32,000 customers, representing a 370% increase over 2019, which further exemplifies their business strength and relevance.</p> <p>In an industry with little serious competition, AudioEye’s current financials, brand, customer base and technology represents a huge advantage over competitors. There’s also the advantage that this industry is still small enough that none of the big tech players will bother with it just yet.</p> <h1>Areas of growth</h1> <p>The digital accessibility industry is still in its early-stages. AudioEye should remain at the forefront of any industry tailwinds and grow accordingly. There’s a ton of potential internationally for their suite of products as more and more countries crack down on and further scrutinize digital accessibility. </p> <p>A possible expansion into App accessibility could provide a huge catalyst for growth for the company, in my opinion.</p> <p>It is estimated 15% of the world’s population has some sort of disability, so you can probably see how huge the market opportunity is for a company that provides a suite of products like this.</p> <p>If AudioEye continues investing into AI and machine learning, they could develop superior technology that would improve margins exponentially, facilitate rapid expansion and possibly be used for other product suites or applications.</p> <h1>Potential headwinds</h1> <p>The biggest threat for AudioEye would be a big tech company suddenly becoming interested enough in the industry and deciding to launch a competitor (specially if they have good AI technology to use as leverage). Although I don’t see it happening any time soon, it would be fatal for a company like AudioEye at this stage.</p> <p>Also, there are some reports that AudioEye’s technology isn’t that complex and that their recent growth and adoption is mostly based on a culture of fear and ignorance businesses have developed to avoid getting sued. There might be some truth to this, and if a scandal broke out discrediting the technology, dragging adoption down, AudioEye as a company would become worthless pretty quickly.</p> <p>Tech experts argue that AudioEye’s customers could easily develop the same solution in-house if they really wanted to and without too much hassle and/or added cost.</p> <h1>Institutional and insider ownership, short interest</h1> <ul> <li><p>Institutional ownership sits at about 15-16%.</p></li> <li><p>Insider ownership and major individual shareholders: </p></li> <li><p>David Moradi, including indirect ownership through Sero Capital (Interim-CEO): 3,119,600 shares (29.13% of total shares outstanding)</p></li> <li><p>Jamil Tahir, including indirect ownership through TurnMark Capital (Board Member): 229,564 shares (2.14% of total shares outstanding)</p></li> <li><p>Dr. Carr Bettis (Executive Chairman): 155,773 shares (1.45% of total shares outstanding)</p></li> <li><p>Sachin Barot (CFO): 134,834 shares (1.26% of total shares outstanding)</p></li> </ul> <p><strong>- Total % of outstanding shares held by insiders: 35-36%.</strong></p> <ul> <li>Short interest is currently 20.28% of the total floating shares</li> </ul> <h1>Earnings</h1> <p><strong>From the latest earning report:</strong></p> <ul> <li>Quarterly net revenue was $5.6 million, up 57% YoY</li> <li>Monthly Recurring Revenue (MRR) was $1.9 million, up 58.33% YoY</li> <li>Quarterly gross profit margin of 73%, up from 66% YoY</li> <li><p>Quarterly net loss of $3 million, up 114.29% YoY</p></li> <li><p>Full-year net revenue was $20.50 million, up 90% YoY</p></li> <li><p>Full-year gross profit margin of 71%, up from 59% YoY</p></li> <li><p>Full-year net loss of $7.2 million, down 7.69% YoY</p></li> <li><p>Guidance for full-year 2021 of revenue between $30 to $32 million, representing a 46.34%-56.10% YoY increase over 2020</p></li> <li><p>Spent $2,134 million of quarterly revenue (38.11% of total) and $4,138 million of full-year revenue (20.19% of total) on Stock Based Compensation expenses, which is the principal cause for the widening quarterly EPS loss and the lackluster full-year 2020 EPS improvement.</p></li> <li><p>Spent $430,000 of quarterly revenue (7.68% of total) and $1.230 million of full-year revenue (6% of total) on Research and Development expenses, which is unusually low for a SaaS company (specially one with AI and machine learning components).</p></li> </ul> <h1>Balance Sheet</h1> <ul> <li>$9,095 Million in Cash and Cash Equivalents </li> <li>$14,631 Million of Total Current Assets</li> <li><p><strong>$18,254 Million of Total Assets</strong></p></li> <li><p>$9,015 Million of Current Liabilities (including $6,328 Million of Deferred Revenue)</p></li> <li><p>$1,083 Million of Long-Term Debt</p></li> <li><p><strong>$10,620 Million of Total Liabilities</strong></p></li> </ul> <h1>Valuation metrics</h1> <ul> <li>Market cap: $305.10 Million</li> <li>Total shares outstanding: 10.71 Million</li> <li><strong>PE Ratio: N/A</strong></li> <li>P/S Ratio: 14.88</li> <li>P/B Ratio: 39.98</li> <li>D/E Ratio: 0.17</li> <li><strong>Negative Free Cash Flow (estimated): ($3.5-4 Million)</strong></li> <li><strong>PEG Ratio: ≈ N/A</strong></li> </ul> <h1>Principal financial metrics of closest competitor (all competitors are private companies, so I’m comparing it to a smaller-cap, more mature SaaS just for reference. AudioEye should, ideally, achieve gross margins on the level of PagerDuty at some point):</h1> <p><strong>NYSE: PD</strong></p> <ul> <li>Market Cap: $3.461 Billion</li> <li>Revenue: $210 Million</li> <li>Gross profit margin: 86.20%</li> <li>PS Ratio: 16.48</li> </ul> <h1>Price action</h1> <p>AudioEye currently sits 35.77% below its 52-week high. It’s a highly volatile stock and has corrections in the double digits on a semi-frequent basis. Only fit for investors with a stomach for short and medium term volatility and extremely high risk tolerance.</p> <p>Current valuation is by no means a bargain and the stock is probably close to fair value or maybe a tad overvalued due to several fundamental risks.</p> <h1>Pros</h1> <ol> <li>Fast-growing, possibly huge industry in its infancy and this company has the strongest moat and resources to grab up major market share in years to come.</li> <li>Interim-CEO has a ton of skin in the game with 29% total ownership.</li> <li>50% insider and institutional ownership (with growing institutional ownership and interest).</li> <li>90% revenue growth, 71% gross profit margin. Rapidly improving margins and good guidance for 2021.</li> <li>Committed to becoming cash-flow positive this year and will probably become Non-GAAP profitable this year as well.</li> <li>Healthy balance sheet with little debt and enough net cash to sustain the current cash burn for at least 2 more years without diluting shareholders any further.</li> <li>Encouraging recent hires of talent from Facebook and Pinterest.</li> </ol> <h1>Cons</h1> <ol> <li>Extreme levels of Share Based Compensation expenses is a huge problem in my opinion. It’s dragging very heavily on EPS and Free Cash Flow. The company should aim to pull way back on these expenses at this stage.</li> <li>It’s urgent that the company generates positive Free Cash Flow this year. Things could get nasty otherwise.</li> <li>Lack of continued executive leadership and non-involvement from the founders is a problem.</li> <li>The company is being led by Private Equity firms and owners. I wouldn’t be surprised if they’re working towards the company being sold so they can cash out. There’s also a risk that all of these people could cash out at any time and leave the company stranded, diluted and with no leadership to speak of.</li> <li>Not profitable, not cash flow positive.</li> <li>Burning $3.5-4 million in cash per year with a net cash position of $9 million. </li> </ol> <p>Disclaimer and conclusion: I’m cautiously bullish on AEYE at this point and have a small exploratory position. I truly believe the market opportunity and projected growth for the industry they’re in is insane, but there are several fundamental risks and challenges with the company that need to be acknowledged. Current valuation is probably fair, but not a bargain. Invest at your own caution and discretion.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/elvita12345"> /u/elvita12345 </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/m4qnp9/audioeye_aeye_dd_the_digital_accessibility_saas/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/m4qnp9/audioeye_aeye_dd_the_digital_accessibility_saas/">[comments]</a></span>Kind Regards R