AudioEye Updates Its Forecast

About: AudioEye, Inc. (AEYE)
by: Mark Hake

AudioEye (AEYE) updated its revenue, contracts and a new metric: Monthly Recurring Revenue (MRR).

Revenue will be on a annual run rate of $17 million by 2019 end.

We update our estimate of AEYE's value at $12.73 within a year, a 65% increase over today's price.

AudioEye, Inc. (AEYE) is a very fast growing software company, which provides digital accessibility via the cloud. The company just updated and refined its 2018 revenue forecasts,which were issued about a month ago. With the Dec. 17, 2018 forecast, AEYE introduced 2019 revenue forecasts, and added a new measure: Monthly Recurring Revenue. I wrote up an extensive review on November 29, 2018 based on those forecasts in Seeking Alpha ("Seeing is Believing: A Review of AudioEye's Prospects and Undervalued Stock"). Based on the updated forecast from AudioEye, I now believe the stock is worth $12.73, up from $10.14, my previous target. This is 65% above today's stock price and market value:

Source: Hake estimates

Here is AudioEye's new updated projections issued on December 17, 2018:

Source: Company filing on SEC Edgar

The main news is that 2019 revenue is now projected to be between $11 million and $13 million. This is significantly higher than expected revenue of between $5.5 million and $5.7 million for 2018 (My previous forecast was for $11.1 million in 2019). Using the mid-range of both estimates suggests that the company will grow revenues in 2019 by 114%.

Source: Hake

In addition, AEYE is now stating that as of November a new measure it calls Monthly Recurring Revenue (MRR) was $600,000 per month. We can use this to project run rate revenue by the end of 2019. We can do this by extrapolating and inserting the variables . It actually is an algebra problem using summation and growth factors (exponents). But it can be done more simply in a spreadsheet formula. For example, we now can forecast that by year end 2019, the total revenue will be $12 million, and we know that monthly revenue is now $600K. So what will be the monthly revenue by the end of December 2019? Here is how that works out:

So for example, the 114% growth rate / 12 = a 9.5% monthly growth factor. But since AEYE is growing exponentially, the geometric rate of growth is lower. It works out to about 6.7% per month:

Source: Hake

So by the of December 2019, total revenue for 2019 is estimated to be $12 million, but the run rate of annualized revenue from Dec. 2019 onward is estimated at $16.7 million. In fact, the 2020 estimate at this geometric MRR growth rate is $26 million in revenue for 2020 and an annualized run rate of revenue of $36.4 million by the end of 2020.

So you can see that this MRR is extremely helpful in developing a valuation analysis of AEYE. I have plugged in the new MRR measure in my model and believe that the stock is now worth $12.73 per share. You can review my previous article to see how I derived that model. But suffice it say that the company should be free cash flow positive by the end of 2019 for about $769K, and $7.6 million by the end of 2020. Based on these measures, my model uses the following matrix valuation measure to derive AEYE's true value:

Here is my full estimate of the company's updated forecast financials:

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.