AvePoint Stock Pops as Goldman Sachs Initiates Coverage With Buy Rating
It’s been less than a month since AvePoint (NASDAQ: AVPT) closed its merger with special purpose acquisition company (SPAC) Apex Technology Acquisition Company, and the enterprise software specialist is now receiving a bullish initiation from Wall Street.
Goldman Sachs (NYSE: GS) has started AvePoint off with a buy rating alongside a price target of $17, which represents a whopping 68% upside from Tuesday’s closing price.
As of 12:15 p.m. EDT, AvePoint shares were up 13%. Here’s why Goldman Sachs likes AvePoint.
Riding Microsoft’s coattails
AvePoint is a software-as-a-service (SaaS) company that specializes in data management solutions for enterprise organizations that leverage Microsoft (NASDAQ: MSFT) 365. The COVID-19 pandemic has accelerated the rate at which companies are undertaking digital transformations, which represents an opportunity for AvePoint (and Microsoft).
“AvePoint is an enterprise data migration leader, facilitating seamless and secure migration of data from legacy on-premise systems to cloud ecosystems, with a primary focus on Microsoft Cloud,” Goldman Sachs analyst Brian Essex wrote in a research note to investors. “AvePoint’s solutions also enable data governance and secure collaboration among enterprise users.”
While many SPAC targets are speculative pre-revenue startups, AvePoint is relatively less risky as it generated $151.5 million in revenue in 2020, Essex notes. Annual recurring revenue (ARR) also grew by 33% in the first quarter, which AvePoint reported before closing the de-SPAC transaction.
The company is forecasting revenue of $257 million in 2022, with growth driven by expanding the customer base while aggressively targeting small- and medium-sized businesses (SMB) and catering to specific industries.
AvePoint estimates that just 3% of Microsoft’s cloud customer base use AvePoint, suggesting that it has plenty of upside as there are 250 million Microsoft customers to pursue.
SPAC sentiment remains soft
Following an unprecedented SPAC boom in 2020, investor sentiment towards blank check companies has cooled significantly in 2021 due to concerns around valuation as well as heightened regulatory scrutiny.
A recent SEC action against Stable Road Acquisition (NASDAQ: SRAC) regarding poor due diligence over its target Momentus has also contributed to broader investor skepticism around SPACs as an asset category.
SPAC stocks used to jump once definitive agreements (DAs) were announced, but nowadays many SPAC share prices stay close to the $10 net asset value (NAV). Even after closing its merger, AvePoint had closed at just $10.12 on Tuesday.
Essex believes the market is not fully appreciating AvePoint’s potential, suggesting that the company has “remained relatively undiscovered” following the de-SPAC. The analyst suggests that AvePoint’s valuation is reasonable when considering its growth potential. Goldman Sachs is modeling for a compound annual growth rate (CAGR) of over 30% through 2023.
“We believe the pace of digital transformation, accelerated by COVID-19, coupled with growing Office 365 adoption will continue to serve as secular tailwinds for AvePoint,” Essex adds.
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