Software-as-a-Service applications platform developer, Verb Technology Company, Inc. (VERB) provides customer relationship management (CRM) applications, live e-commerce applications, as well as non-digital services to its enterprise clients. With livestream e-commerce going mainstream, fueled by a pandemic-induced rise in online shopping, the company’s verbLIVE technology continues to see increasing engagement. In fact, the strategic launch of verbTEAMS and verbLIVE this year has helped VERB gain 13.9% year-to-date. The stock closed yesterday’s trading session at $1.88, 39.4% below its 52-week high of $3.10.

Although increasing demand for its SaaS tools from its new and existing clients has led to substantial improvement in revenue growth in the last reported quarter, its expenses have increased significantly primarily due to increases in non-cash stock-based compensation expenses. Moreover, VERB’s premium valuation and high operational losses could lead to a pullback in the near term.

Here is what we think could influence VERB’ performance in the near term:

Competition in the SaaS Market

The global software as a service market is expected to reach $436.9 billion in 2025, exhibiting a CAGR of 12.5%. The increasing penetration of smartphones, growing internet usage, and increased cloud spending by organizations have resulted in higher adoption of affordable and flexible SaaS solutions. As the market is growing continuously, the competition among SaaS application providers is increasing. With dominant players like Salesforce.com, Inc. (CRM), Microsoft Corporation (MSFT) and Cisco Systems, Inc. (CSCO) investing heavily to develop innovative solutions to satisfy diverse needs of enterprises and capture a significant portion of market share, relatively smaller players like VERB may not be able to generate enough growth.

Poor Profitability

The company’s trailing-12-month asset turnover ratio of 0.3% is 56% lower than the industry average of 0.6%. Moreover, its trailing-12-month ROE, ROA, and EBITDA margin are negative 189.9%, 71.9%, and 282.6%, respectively. Also, VERB’ trailing-12-month cash from operations came in at negative $20.95 million.

Unstable Financials

Although VERB’s SaaS subscription revenue for the first quarter that ended March 31, 2021, increased 38% year-over-year to $1.46 million, its revenue under its Other Digital segment declined 15% from the year-ago value. The company’s total operating expenses rose 106.6% from the year-ago value to $10.64 million. Its operating loss came in at $9.33 million compared to $3.86 million in the first quarter of 2020. Also, VERB’s net loss increased 41.5% from the prior-year quarter to $8.35 million. The company’s loss per share came in at $0.16 over this period.

Stretched Valuation

In terms of non-GAAP forward EV/Sales, VERB is currently trading at 8.22x, which is 92.2% higher than the 4.28x industry average. The stock’s forward Price/Sales and Price/Book multiples of 8.59 and 12.13, respectively, compare with the industry averages of 4.12 and 6.33, respectively.

Unfavorable POWR Ratings

VERB has an overall grade of D, which translates into a Sell rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.

Our proprietary ratings system also evaluates each stock based on eight different categories. VERB has an F grade for Quality. The stock’s lower-than-industry asset turnover ratio is reflected in this grade.

Also, it has a D grade for Value, which is consistent with the company’s higher-than-industry valuation multiples.

In terms of Growth, VERB has a C grade. This reflects the company’s weak growth prospects.

In addition to the grades we’ve highlighted, one can check out additional VERB ratings for Sentiment, Stability, and Momentum here.

VERB is ranked #116 out of 131 stocks in the D-rated Software – Application industry.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

Even though VERB’s innovative sales pipeline and recurring revenue driven by its verbLIVE products have attracted investors, the company’s inadequate financial strength and stretched valuation in a competitive market can further affect its profitability. This makes it a highly speculative investment. So, it’s wise to avoid the stock for now.

Click here to check out our Software Industry Report for 2021

VERB shares were trading at $1.79 per share on Wednesday afternoon, down $0.09 (-4.79%). Year-to-date, VERB has gained 8.48%, versus a 16.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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