The Uncommon Idea in Brief
Buy LogMeIn (LOGM) stock for the long term. (Published Aug. 20, 2017)
– Build a long position between $111-$114 (it closed Friday at $113.50) with the willingness to buy a breakout over $120. Add aggressively in the $102-108 range.
The Industry Opportunity
According to Gartner, the key challenge to organizations customer relationship management strategy is that firms fail to consider the myriad of channels used by customers to interact with organizations.
Additionally, as the world “expands,” more tasks will be taken on remotely as some agents shift away from a customer service role, which will be replaced by computerized conversational agents.
What LOGM Does
LogMeIn provides a portfolio of cloud-based service offerings, which helps people and businesses to connect to their workplace, colleagues and customers.
The company’s core cloud-based services are categorized into four business lines:
– Communications and Collaboration – GoToMeeting, GoToTraining, GoToWebinar, join.me, join.me pro and join.me enterprise, OpenVoice and Grasshopper
– Engagement and Support – BoldChat, GoToAssist, GoToAssist Corporate and GoToAssist Seeit, LogMeIn Rescue, Rescue Lens and LogMeIn Rescue+Mobile and Xively
– Identity and Access – LogMeIn Central, GoToMyPC, LogMeIn Pro and LastPass
– Additional Service Offerings – LogMeIn Backup, LogMeIn Hamachi and RemotelyAnywhere
The Uncommon Market Position That Sets LogMeIn Apart
LogMeIn positioned itself early as the go-to for telecommuters and secure remote computer operation, but it wasn’t until it merged with Citrix System’s GetGo subsidiary that LogMeIn became a true go-to. The acquisition of GetGo, better known as GoTo, allowed LOGM to offer video conferencing and remote training applications transforming the company into a true software-as-a-service company with only Oracle (ORCL) as a direct competitor.
Recently, LogMeIn introduced Bold360, which allows an organization a real-time 360-degree view of how the customer interacts with the organization. Bold360 allows a company the ability to manage multiple channels, chat and video while aiming to provide one view of all customer touch points as well as a unified interface that can handle chat, text and video.
Automation technology will enable customer self-service support and free up agent workflows. Agents can consolidate data from different systems and engagement tools like live chat, Facebook messenger, email and remote support for co-browsing, file transfers and desktop control. Without a Salesforce or Zendesk code, integration agents can pull all customer data into a single interface separating LogMeIn from competitors and creating a broad appeal for the platform.
Financials – LOGM Continues to Evolve With the Internet
Despite second-quarter revenue of $257 million coming in shy of analysts’ $264.9 million estimate, LOGM delivered net income of $14.8 million. The profit of $0.28 per share surpassed expectations. Adjusted net income totaled $1.01 per share on non-GAAP income of $54.4 million.
LogMeIn produced strong cash flow of $98.8 million, raising its cash position to $98.9 million, or $5.52 per share, against a backdrop of no debt. The company continues its return of capital to shareholder’s plan by maintaining a $1 per share annual dividend.
Management projected third-quarter revenue of $264 million to 266 million, with earnings of $1.10 to $1.12 per share. While revenue is once again projected a few million short of estimates, a 10% increase on the bottom end of EPS expectations has spurred optimism for continued bottom-line beats and strong cash flow. For the full year, the company anticipates earnings of $4.00 to $4.10 on $978 million to 983 million in revenue.
The January 2017 purchase of Citrix Systems’ GetGo subsidiary, referred to as GoTo, is not reflected in the company’s current guidance. LogMeIn estimates the combined operations of the two will generate more than $1 billion in pro-forma revenue and the synergies of the two companies will save $65 million in cash after the first year of the merger and up to $100 million two years out.
The Technical Analysis – On a breakout over $120 or pullback to $102.00, LOGM is an optimal technical BUY. Building a position between $111 and $114 is attractive.
The current market conditions warrant caution. Stocks are mired in a position when short-term technical setups trump long-term fundamentals. The pendulum will swing back toward fundamentals at some point, but it may not happen until we push deep into the fall.
Over the past three months, traders have developed a wide consolidation channel with the $122 area acting as a recent blow-off top followed by a sharp retracement to the previous breakout level of $102. The stock spent the first half of the year trading between $93 and $110 in a very similar pattern before the April push higher. Given the similarities, the $102 level as support appears strong and a breakout over the $120-$123 area should be considered buyable. The width of the channel would provide an approximate upside target of $145, although a $140-$145 range is more realistic and should be used when considering taking profits.
Despite the recent pullback, the bounce from the $102 level has been accompanied by bullish patterns in both momentum and trend as demonstrated by the bullish crossover in the Stochastics and the push of the Stochastics RSI above the 13-week simple moving average (SMA). These were both patterns experienced prior to the April breakout. Price holding above the 13-week SMA of $111 would confirmed this strength. A close below would trigger concerns the stock needed to test $102 a second time before being bought.
This setup provides two entry options: buy the breakout or buy a successful test of support. A weekly close over $120 despite being $6 higher than the current price. It would confirm the return of both trend and momentum. Additionally, there is no technical resistance level above $123. The upside extension targets $145.
A secondary approach is to buy a successful test of $102 where the stock does not close under the $102 consecutive weeks. This becomes range trade where you would expect the stock to move between $102 and $122 in a zig-zag fashion.
Volume has been relatively stable, with only the week of the earnings release popping above the long-term moving average. It is encouraging to see volume at or below average during the pullback, but an increase in volume over the upcoming weeks would be a positive.
Should support fail, we’d anticipate a new consolidation channel to develop within the old $93-$110 channel. Unfortunately, wide trading channels are common with LOGM, but this is the area where we’d expect investors to become more aggressive buyers for the longer term.
Our initial target on a breakout, independent of fundamental views, would be $140-$145 in six to nine months with an ultimate upside of $160 within 12 to eighteen.
Catalysts for the Thoughtful Investor on Why Universal Display is a Buy
The merger with Citrix System’s GoTo products pushed LOGM ahead of competitors, but combining existing technology artificial intelligence may push LogMeIn to the next level. LogMeIn’s recent acquisition of Nanorep, a digital self-service chatbot and virtual assistance company, allow LogMeIn to expand its client reach and cement itself deeper within existing clients. By harnessing artificial intelligence and patented natural language processing technologies to create solutions that are more engaging and intuitive, LogMeIn is humanizing virtually assisted interactions.
A study by Gartner suggest the percentage of customer service experiences that will be handled by conversational agents is expected to increase from 3% in 2017 to 30% in 2022. By integrating Nanorep into the company’s Bold360 product, clients will be able to get a 360-degree view of all points of customer interface. Furthermore, the availability of automation technology will enable customer self-service support while also freeing up agent workflows.
The Bottom Line
1. LogMeIn is the leader in telecommuter software and secure remote access.
2. The merging of LogMeIn with Citrix System’s GoTo subsidiary combine LOGM’s leadership in remote access with GoTo’s premium video conferencing and remote training applications to expand product offerings and deepening LOGM’s foothold with existing clients. The combination will drive pro-forma revenue over $1 billion within the next twelve months.
3. In the range of $111 to $114 we like LOGM as a long-term buy and hold. Over $120, we like LOGM as a momentum breakout long. The mid-cap nature, short interest and synergy risks will make it volatile.
4. LogMeIn’s acquisition of Nanorep will allow it to harness the power of artificial intelligence to create solutions that makes self-service more engaging and intuitive. The humanizing of virtually assisted interactions will drive client acquisition and revenue into the next decade.