Cloud-based customer engagement platform eGain Corporation (NASDAQ: EGAN)
shares were punished on its Q1 Fiscal 2021 earnings release. While still trading above its pre-pandemic
February highs, it’s still outperforming the benchmark S&P 500 index (NYSEARCA: SPY)
. As we get closer to a COVID-19 vaccine approval
, pandemic benefactors
such as eGain have been seeing profit taking. However, the overreaction on the panic selling may provide risk-tolerant investors with opportunistic pullback entries, especially in light of potential further tax-loss selling into the end of the year.
Q1 FY 2021 Earnings Release
On Nov. 10, 2020, eGain released its fiscal first-quarter 2021 results for the quarter ending September 2020. The Company reported an adjusted earnings-per-share (EPS) profit of $0.08, beating consensus analyst estimates for EPS profit of $0.06, by $0.02. Revenues grew by 11.6% year-over-year (YOY) to $19.1 million versus analyst estimates of $19 million. SaaS and professional services revenues were up 23% YoY to $17.3 million, which comprises 91% of total company revenues.
The Company lowered Q2 fiscal 2021 EPS to a range of (-$0.02) to $0.02 versus consensus estimates for a profit of $0.06. Revenue estimates for fiscal Q2 were also lowered to a range of $18.1 million to $18.7 million versus $19.8 million consensus analyst estimates. SaaS revenues growth is projected at 5% to 8% and total revenue growth expected to only grow up to 3% YoY.
Conference Call Takeaways
eGain CEO, Ashu Roy, provided more color on the quarter. The highlight was the 29% YoY growth in SaaS revenues. The Company generated $5.8 million in operating cash for the quarter with a 31% operating margin. With no debt and $53 million in cash, Roy proclaimed, “This strong financial position gives us increased confidence in continuing to execute to our growth plans despite COVID uncertainty.” The fiscal Q2 lowered guidance was due to the loss of two large clients and plans to invest in the Company in order to accelerate growth. Roy stated, “We see 2021 as an investment year for eGain. Given the typical nine-month enterprise sales cycle which of anything is being somewhat extended in the current environment. expect our investments to have a meaningful impact only in fiscal 2022 on our top line.” This statement caused shares to collapse as the Company essentially implied not to expect improvement for a whole year.
The Company plans to invest in brand awareness with more virtual events and app-based spending. This started in Q1 and the Company is already seeing some early returns as traffic to the Company’s site double YoY. Marketing leads were up 90% YoY in the U.S. and 53% YoY globally. eGain is also investing in partner enablement by expanding contact center partner teams with existing clients like Cisco Systems (NASDAQ: CSCO), Avaya (NASDAQ: AVYA) and CRM eco systems mainly targeting Salesforce (NASDAQ: CRM), Microsoft (NASDAQ: MSFT) and ServiceNow (NASDAQ: NOW). This will meet the growing demand for integrating the Company’s customer engagement platform into multiple CRM systems. eGain plans to invest in collaborations targeting clients in financial services with conversational customer engagement through AI technology. Perhaps the most impactful will be the doubling of its sale capacity in 2021 in two phases. In November calendar 2020, the hiring has been done and training is underway for the direct sales team. The second wave of hiring is expect by March to April 2021, with two-thirds of the sales capacity expansion focused in the U.S. and the rest in Europe. The big overreaction in shares can provide prudent investors with a long-term holding period opportunistic pullback entries. The impact of Company investments may materialize sooner rather than later.
EGAN Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader complete perspective of the landscape for EGAN stock. The monthly rifle chart peaked out at the $20.78 Fibonacci (fib) level. The vicious rug pull caused shares to collapse through its 5-period moving average (MA) so hard that the stochastic peaked and crossed back down through the 80-band. This sets up the potential for a channel tightening towards the monthly 15-period MA around $9.60. The weekly rifle chart formed a market structure low (MSL) buy trigger above $7.30, which provides a strong support area. The weekly rifle chart has a bearish mini inverse pup stochastic oscillation down with a falling 5-period MA at $13.60. The bearish momentum can provide opportunistic pullback levels at the $10.13 fib, $9.48 fib, $8.84 fib and the $7.56 fib. Since the near term rifle charts are so bearish, they may accelerate on potential end of year tax-loss selling.
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