In July, the Israeli technology company was issued Culture NASDAQ at a price of $ 10 per share, and in the middle of last week it traded at a similar price. However, the financial statements for the third quarter, published last Wednesday, led to an extraordinary drop in the share price, and it ended the trading week at $ 5.98 per share, lower by about 40% of the price before the reports are published.The company’s market value is about $ 750 million – compared to a value of about $ 1.24 billion in the IPO, cut from the value of $ 2 billion that the company aspired to in a previous IPO attempt, which was canceled in April.
Kaltura is a provider of video management systems, which are sold to business organizations and media companies. The company was established in 2006 by Ron Yekutiel The current CEO is Dr. David Shai, Dr. Michal Tzur and Eran Itam.
The disappointment stems from fourth-quarter forecasts
Analysts did not miss third-quarter forecasts – the company posted revenue of $ 43 million, 40% growth over the same quarter last year, and posted a net loss attributable to shareholders of $ 26.7 million, compared to a loss of $ 9.5 million in the same quarter last year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was also negative, as expected, at $ 2.3 million, compared to positive EBITDA of $ 1.7 million in the corresponding quarter.
Investors’ disappointment came, among other things, against the background of the forecast for the fourth quarter. The company expects revenue of $ 41.2-43.2 million, with negative EBITDA of $ 9.5-7.5 million. Accordingly, the current year will end with revenues of approximately $ 163.5-165.5 million and negative EBITDA of $ 14.1-12.1 million. This means a 36% -37% growth in revenue compared to 2020, but beyond negative versus positive EBITDA of $ 4.3 million in 2020.
Oppenheimer Israel wrote that Kaltura published results above expectations, but provided a slightly lower forecast than the consensus for the next quarter, with a negative effect as a result of the low rate of recruiting new sales people.
In a conference call after the reports were released, CEO Yekutiel said the company continues to recruit sales and customer support teams, but added that “we are a bit delayed in relation to our internal recruitment plan, but expect to keep pace in the coming quarters.”
In response to an analyst’s question, he added that there had been a significant jump in the number of employees, and estimated that the company was on the verge of accelerating growth. CFO Yaron Gramsci estimated that with the expected recruitment of salespeople in the fourth quarter of this year and the first of next year, Cultura will have the appropriate workforce to support growth next year.
Yekutiel also said that Kaltura is a “very exciting company” that operates in attractive markets and has many benefits. However he admitted: “Yes, it’s a little harder (recruiting) than it was a year ago, two or three years ago, given the number of companies recruiting. But we see a lot of excitement from those who are joining us.”
Ron Yekutiel – Culture Company / Photo: Eyal Yitzhar
As part of the initial public offering in July, Kaltura raised $ 173 million (gross), part of which was intended to accelerate marketing and sales, and after the IPO, Yekutiel told Globes: “To date, we have invested more in development than marketing, and yet we have accelerated growth. “We will increase our investment in marketing.”
Oppenheimer lowered the target price
Following the reports, the investment bank Oppenheimer lowered its target price for the Kaltura share to $ 13 – $ 2 – a price that today is more than double the current price. Their recommendation for the stock remained an “over-yield.” Analyst Itai Kidron wrote: “Kaltura continues to aggressively increase its recruiting staff (increased by 30% -50% the number of employees in sales this year), which should accelerate sales growth as new employees become productive.”
At Oppenheimer we noted positively the increase in customer retention rate and gross profitability for the quarter, and on the other hand noted negatively the fact that the increase in annual recurring revenue (ARR) was lower than the previous quarter and the fact that recruiting salespeople and marketing efforts will adversely affect profitability in the near term.
Bottom line, despite the mixed results, Oppenheimer believes the culture has many growth engines and its growth could be accelerated by 2022. In their opinion, the weakness in the stock also provides an attractive entry point for the investment.