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eGain Up 50% In A Day, What's Going On?

Feb. 11, 2019 1:43 AM ETeGain Corporation (EGAN)9 Comments


  • This is a stock that is used to big and sudden jumps on earnings, but underlining growth is healthy.
  • It's masked by a shift in business model towards a cloud based SaaS platform, its declining legacy business reduced headline growth.
  • But business development is sound and the optical effect of the change in business model will wear off and the benefits will remain.

After a truly epic rally half a year ago, we wrote that the shares of eGain (NASDAQ:EGAN) were fully valued, and then they crashed. A few months later, we argued the crash was overdone, and now the shares are coming back, even if we had to wait for that quite some time.

eGain offers a cloud based customer engagement solution that stitches together all customers' touch points in a single solution and adds AI smarts and analytics to gain insights.

It started off as an on-premise solution, but the stock started to seriously take-off when the company moved towards a cloud based SaaS model. That's not surprising for anyone who is a regular reader of our articles here. We're great fans of these Swiss army knife-type business models.

We're hardly alone in that, witness the premium valuations companies based on these business models command in the markets, and eGain isn't an exception.

Here is a longer-term view:

ChartData by YCharts

You see a decline in revenues that has only started to reverse last year, but this is simply optical and the result of a shift in business model. The company used to sell on-premise license, but it has moved to cloud SaaS subscriptions.

In fact, so tiny are the license revenues (less than 1% of revenues) that the company is now reporting two revenue categories: subscription (89% of revenues, up 25% y/y) and professional services (11% of revenues, down 32% y/y).

The latter is due to the decline of its legacy business as legacy support is declining. Management expects this to continue during the year and professional services will constitute high single digits part of revenue in the second half of the year.

The most important metrics however are SaaS revenue (growing at 53% y/y in Q2) and subscription revenue (+25% y/y). Management argues that their

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

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Finding the next Roku while navigating the high-risk, high reward landscape

I'm a retired academic with three decades of experience in the financial markets.

Providing a marketplace service Shareholdersunite Portfolio

Finding the next Roku while navigating the high-risk, high reward landscape.

Looking to find small companies with multi-bagger potential whilst mitigating the risks through a portfolio approach.

Analyst’s 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.

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