Down 94% from the peak: What went wrong at LivePerson

Last Thursday, the share price of technology company LivePerson (Nasdaq: LPSN; TASE: LPSN) plunged more than 50%, giving the company a market cap of just $310 million, a long way below the valuation at which it was listed for trading on the Tel Aviv Stock Exchange over a decade ago, and below the valuation at which it was originally floated on Nasdaq.

The collapse was due to weak financials that missed market estimates, and first quarter guidance projecting a double digit decline in revenue.

AI and automation

In early 2011, at an investment conference in Tel Aviv, US-based Liveperson was introduced as a company that planned to list its shares on the local stock market, which it did shortly afterwards. The company provides software as a service (SaaS) solutions to enterprises to manage customer service, chiefly through live chat on messaging platforms. LivePerson was presented at the conference as an innovative company that creates for its customers (among them major banks and telecommunications companies) an appropriate user experience while maintaining privacy, and whose revenue and profits were steadily growing.

The company’s platform is meant to improve the user’s customer service experience through the use of artificial intelligence and automation. Its tools combine bots and human response, and are based on data, in order to make communications more efficient.

LivePerson was founded in the mid 1990s by Robert LoCascio, who still heads the company. It was floated on Nasdaq in 2000, just before the dot.com bubble burst. When it became dual listed on the Tel Aviv Stock Exchange, even though it was not an Israeli company, the move was explained by the fact that a substantial proportion of its workforce was in Israel, after its acquisition of two local startups, on the basis of which it set up a development center in Ra’anana.

When it joined the Tel Aviv Stock Exchange, LivePerson had a market cap of $570 million, after ending the previous year with revenue of $110 million, a net profit of $9.3 million, and EBITDA of $26.8 million.

Twelve years have gone by since then, and last week LivePerson released its financials for 2022, showing revenue of $515 million, a net loss of $226 million – the third successive annual loss of over $100 million – and negative EBITDA of $16.2 million.

Failure to leverage pandemic demand

LivePerson ought to have been in a completely different place. As a pioneer of a field that enables businesses to communicate efficiently with their end consumers through various digital channels (apps, websites, social platforms), it should have made a great leap forward during the Covid-19 pandemic.

At that time, everyone was switching to digital, and those already there intensified their activity. Small businesses acquired a new online presence, against a background of lockdowns and social isolation.

LivePerson’s solutions were exactly suited to this kind of situation, and indeed the company’s financials during the period indicated growth that reflected the demand.

In May 2020, LoCascio promised that his company would emerge from the crisis much stronger than before. In August of that year, he said, “With work from home and social distancing the new normal, the concept of the traditional voice call center has become obsolete. Demand for our platform rose significantly in the second quarter as brands rushed to fill the void with AI-powered messaging.” At that time, the company itself announced that it was switching all its employees to working from home.

Accordingly, LivePerson’s share price rose almost five-fold from the low it had reached at the beginning of the pandemic to give it a peak market cap of $4.7 billion in February 2021. At that time it raised $450 million in an offering of zero-interest convertible bonds with a conversion price of $75.2 per share, a very long way from the current price, which closed at $3.66 on Friday.

But despite the demand during the pandemic for the kind of products that it supplied, LivePerson did not benefit as much as other companies, and analysts pointed to the fact that the number of contracts with new customers fell in 2020-2021, raising doubts about its capacity to execute in the face of fierce competition.

Furthermore, even during the pandemic peak, LivePerson did not manage to translate revenue growth into improvement in its bottom line, and it reported losses throughout the period.

In 2020, it posted a net loss of $108 million, weighed down by stock-based compensation to employees, restructuring expenses in connection with leases on its offices because of the switch to home working, and various write downs. In 2021, the loss grew to $125 million.

No recovery on the horizon

As things got back to normal after the pandemic, LivePerson’s share price went into steep decline, partly because of a change in investor taste away from loss-making growth companies. Even longstanding investors in LivePerson, however, used to extreme volatility in the share price, had never experienced such a sharp one-day fall as happened last week, after the 2022 financials were published.

On Thursday, the share dropped 58% on huge volume both on Nasdaq and on the Tel Aviv Stock Exchange, leaving it 94% down from the peak.

The disappointment was absolutely clear at the weak results, but even more at the guidance. LivePerson projects a 17% decline in revenue in the first quarter in comparison with the first quarter of 2022, and a decline in annual revenue to $395-410 million, down 16.5% on 2022 at the mid-point of the range, whereas analysts had forecast $551 million. CEO LoCascio made optimistic noises about the company being able to present a “very profitable” business model, but investors were not convinced.

No trigger that might make the share price rise appears on the horizon. According to MarketWatch, thirteen analysts cover LivePerson, and not one of them gives the stock a positive rating.

Credit Suisse (which itself has been through a stormy period with the collapse of its share price and the rescue by UBS) is one of the institutions that covers LivePerson. After the sharp fall in the share price last week it adjusted its recommendation from “Underperform” to “Neutral”.

Credit Suisse says that the company seeks an immediate correction through cost cutting and exiting non-core business. The investment bank says that although the situation is challenging, especially given the current macro-economic situation, this is a vital step. It sees a long road to recovery.

Published by Globes, Israel business news – en.globes.co.il – on March 26, 2023.

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