Rosenblatt has maintained a positive outlook on Xperi (NASDAQ:ADEA) Holding Corp (NYSE:XPER), reiterating a Buy rating and a $15.00 price target for the company's stock.
The firm's stance comes after Xperi completed the sale of its Perceive business to Amazon for $80 million.
The deal resulted in Xperi receiving $68 million in cash upfront, while the remaining $12 million will be held for 18 months to cover any potential indemnification obligations. Post-transaction expenses, including taxes, closing costs, and fees, the company anticipates a net gain of $52 million from the sale.
According to the firm's analysis, the sale is expected to positively impact Xperi's adjusted EBITDA margins by approximately one percentage point annually. Xperi, characterized as a company with innovative ideas in connected TV and in-car entertainment, is in the early stages of growth.
The report further highlights Xperi's financial projections, indicating an expected adjusted EBITDA margin of 12% to 14% for the calendar year 2024, with an ambition to reach a long-term margin goal of 25% to 30%.
The firm's price target is based on the assumption that Xperi's shares will trade at 8 times its enterprise value to EBITDA ratio, which currently stands at a considerable discount compared to its industry peers. However, this gap is anticipated to narrow as the company continues to expand and evolve its business.
The firm concludes by suggesting that at the current valuation of 4.5 times enterprise value to estimated 2025 EBITDA, the downside risk for Xperi's stock is limited. This assessment reflects a cautious optimism about the company's potential for growth and margin improvement following the recent business transaction.
In other recent news, Xperi Inc. has finalized a significant asset sale to Amazon.com (NASDAQ:AMZN) Services LLC, involving the sale of assets and certain liabilities from its subsidiary, Perceive Corporation, for a total of $80 million.
The transaction is expected to enhance Xperi's financial profile by improving its Adjusted EBITDA margin by roughly one percentage point on an annualized basis. In addition, Xperi reported a slight decrease in its Q2 2024 revenue, which stood at approximately $120 million, marking a 2% decrease year-over-year. However, the company's adjusted EBITDA notably increased, reaching $15 million, nearly tripling from the previous year.
Xperi's subsidiary, TiVo (NASDAQ:TIVO_old) Platform Technologies LLC, has also made advancements, doubling its operator partnerships for its TiVo Broadband service. This expansion includes an addition of over 200 Free Ad-Supported Streaming TV (FAST) channels in the United States.
Despite a 40% drop in consumer electronics revenue and a 25% decrease in media platform revenue, Xperi saw a 41% increase in Connected Car revenue and a 5% growth in Pay TV revenue. Analysts highlight Xperi's strategic focus on connected TV advertising, in-cabin entertainment, and TiVo video-over-broadband as key growth opportunities.
InvestingPro Insights
To complement Rosenblatt's analysis, recent data from InvestingPro offers additional insights into Xperi's financial position. The company's market capitalization stands at $398.06 million, with a price-to-book ratio of 1.02 as of the last twelve months ending Q2 2024. This valuation aligns with Rosenblatt's observation of the company's current discounted position relative to peers.
InvestingPro Tips highlight Xperi's impressive gross profit margins, which is reflected in the data showing a gross profit margin of 76.55% for the same period. This strong margin supports the potential for improved EBITDA margins that Rosenblatt anticipates following the Perceive business sale.
Another InvestingPro Tip notes that Xperi operates with a moderate level of debt, which could provide financial flexibility as the company focuses on growth in connected TV and in-car entertainment. While the company was not profitable over the last twelve months, analysts predict profitability this year, aligning with Rosenblatt's expectation of progress in coming quarters.
For investors seeking a more comprehensive analysis, InvestingPro offers 4 additional tips for Xperi, providing a deeper understanding of the company's financial health and market position.
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