In this article, we will discuss the 10 Best Technology Penny Stocks to Invest In Now.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Rekor Systems, Inc. (NASDAQ: REKR)
Number of Hedge Fund Holders: 16
Rekor Systems, Inc. (NASDAQ: REKR) is an AI-powered roadway intelligence technology company that aims to provide infrastructural solutions to the transportation and urban mobility market keeping in view public safety.
For instance, Rekor One is an AI-based roadway intelligence platform, similarly, Rekor Discover, is an AI technology that provides comprehensive analytics and actionable insights on moving objects across the roadway.
In Q1 2024, Rekor Systems, Inc. (NASDAQ: REKR) reported gross revenue of $9.8 million with a YoY growth of 58%. The revenue growth was driven by the acquisition of All Traffic Data Services (ATD). Revenue attributable to ATD was $2.36 million. In addition, the company completed $26.4 million worth of public offering in February 2024.
ATD portfolio includes; pedestrian studies, radar speed monitoring, traffic counts and turning movements, etc. Rekor founder, Robert Berman emphasized the importance of ATD in a recent press release and stated:
“ATD collaborates closely with numerous traffic engineering firms, metropolitan planning organizations, municipalities, and state departments of transportation, where Rekor currently lacks a sales presence,”
“By uniting two traffic data collection powerhouses, STS and ATD, Rekor is combining decades of traffic engineering and data collection expertise with Rekor’s cutting-edge artificial intelligence and machine learning capabilities,” says Robert A. Berman, Rekor Founder.”
Rekor Systems, Inc. (NASDAQ: REKR) announced a partnership with MS2, a leading provider of Transportation Data Management Systems (TDMS). With an integration of real-time traffic data from Rekor Discover with the cloud-based TDMS, the company will offer new dynamics to real-time traffic data analysis. These developments have boosted the company’s confidence in reaching its $35 million revenue target in 2024.
All these positive developments, a trailing 12-month YoY growth of more than 60%, and analysts’ annual forecast of 46.5% in revenue growth speaks to the bull case for the company.
Although Rekor Systems, Inc. (NASDAQ: REKR) performed well in terms of revenue, the earnings and share price are on the decline. For instance, in its earnings statement for Q1 2024, the company reported a Non-GAAP EPS of $-0.17 and missed the analysts’ earnings expectations by -0.07$. Furthermore, the contract value declined by 35% in Q1 2024, it came down to $7.84 million from $12 million YoY.
Over one year, the share price is down by 43.4% owing to the quarter-over-quarter operating losses, for instance, by the end of the fiscal year 2023, the company posted an operating loss of $45.68 million.
Though the company has grown its revenue over the past few years, it’s yet to be profitable owing to the cost incurred in the acquisition and development of new products in the technology sector.
In Q1, the cost of revenue excluding depreciation and amortization increased by 84% from $2.86 million in Q1 2023 to $5.28 million in Q1 2024 due to the increase in direct costs from hardware procurement to support revenue. In addition, $8,29000 of the cost increase was associated with ATD acquisition.
According to Insider Monkey’s database, 16 hedge funds held stakes in Rekor Systems, Inc. (NASDAQ: REKR) the total holdings are valued at $41.4 million.
9. Conduent Incorporated (NASDAQ: CNDT)
Number of Hedge Fund Holders: 16
Conduent Inc. (NASDAQ: CNDT) is an Information technology firm that provides online business solutions. The company specializes in automation, analytics, and transaction-intensive processing. Conduent provides services to the public, commercial, and healthcare sectors.
Conduent Inc. (NASDAQ: CNDT) is a New Jersey-based company that provides services like digital payments, finance, and accounting, legal and compliance solutions, and health care solutions such as appointment scheduling, patient management, etc.
In Q1 2024, Conduent Inc. (NASDAQ: CNDT) reported a revenue of $921 million, which was up from the expected revenue of $895.5 million. Moreover, the company’s EPS of -$0.09 beat analysts’ expectations of -$0.15.
This quarter witnessed a solid turnaround in pre-tax income of $128 million as compared to the $8 million in loss in the same quarter in 2023. This turnaround was primarily associated with the transfer of its Benefitwallet Health Savings Account portfolio to HealthEquity, Inc. (Nasdaq: HQY) for $425 million an aggregate sale price of three transfers.
In a recent development, Conduent Inc., (NASDAQ: CNDT) partnered with Microsoft in an attempt to deliver innovation using Microsoft’s Azure Open AI services. This partnership begins to explore generative AI for healthcare claim management, fraud detection, and enhancing customer service.
Moreover, the company partnered with Oracle to streamline transaction processing by migrating the on-premises Oracle Exadata environment to the cloud with Oracle Database@Azure.
Over the past year, the company’s share price increased by 14% due to significant growth demand in the AI market and year-over-year operational improvement.
Conduent Inc, (NASDAQ: CNDT) is set to streamline the firm’s operations by selling off the non-core divisions and working on its debt reduction initiatives to further strengthen its financial position. For instance, the company added $240 million to its debt-repayment plan by a recent sell-off of its causality claims solutions to MedRisk.
By the end of the first quarter, the company had already allocated $300 million to gain its target of $1 billion for debt reduction and a share buyback program. Aligned with this goal, the company recently completed a share repurchase of $132 million from affiliates of Carl Icahn at a share price of $3.47 per share. In addition, the recent partnership with Microsoft and Oracle is said to derive revenue and reduce costs, all these developments speak to the bull case for the company.
The company had a debt of $1.29 billion a year ago that was reduced to $1.09 billion by the end of March 2024. However, it has $415 million in cash, leading to a net debt of $678 million. The company is making efforts to streamline cash flow and reduce debt but it will take time and therefore may affect the share price in the next quarters.
There was a marginal improvement in sales in Q1 that didn’t meet expectations primarily due to the timings of new business ARR( Annual Recurring Revenue). In the Earnings call transcript of May 1, 2024, the Company’s CFO stated:
“The net ARR activity metric, our combined measure of wins, losses, pricing effects, and other contractual changes, was positive this quarter, but substantially lower at $17 million. There’s going to be a rollercoaster effect emerging in this metric as we go through this year that is worth spending a few minutes explaining. Based on the above full year sales outcome, we expect the metric to stand at around $100 million by the end of 2024. However, there was pronounced asymmetry in our notified losses last year, with them being far more weighted towards the back half of the year, and additionally the effect of the Australia transit deal, which yielded around $48 million of ARR in the second quarter of last year. What you’re going to see is this net ARR activity metric going negative in the second quarter, and then recovering strongly in the third and fourth quarters.”
According to Insider Monkey’s Hedgefund database, 16 hedge funds held stakes in Conduent Inc. (NASDAQ: CNDT). Icahn Capital LP is the largest stakeholder with close to 38.15 million shares worth $128.94 million.
8. Nerdy, Inc. (NYSE: NRDY)
Number of Hedge Fund Holders: 17
Nerdy, Inc. (NYSE: NRDY) operates a software application platform for live online learning. The company leverages technology including AI to connect users like students with instructors and tutors.
In Q1 2024, Nerdy, Inc. (NYSE: NRDY) reported revenue of $53.7 million, highlighting a growth of 9% year over year from $49.2 million in Q1 2023. The revenue growth outperformed expectations by a considerable margin driven by the continuous scaling of consumer and institutional businesses.
Moreover, the Varsity Tutor platform access expanded to include 1.2 million institutional students bringing the number to 2.2 million students. The Varsity Tutor platform executed 83 contracts yielding $4.4 million of bookings.
In addition, the learning memberships of the company continued to scale up in Q1 2024, reporting revenue of $39.9 million from learning memberships, which grew 34% compared to the same quarter in the previous year. Institutional business revenue posted a strong growth in revenue of $11.9 million which grew by 39% YoY.
Moreover, the firm reported a Gross profit of $36.5 million and a non-GAAP adjusted EPS of $-0.01 beating the analysts’ expectations by $0.01.
Nerdy, Inc. (NYSE: NRDY) highlighted the growth of learning sessions in its shareholder letter Q1 2024:
“Utilization of Institutional high-dosage tutoring products, which included our new District Assigned, Teacher Assigned, Parent Assigned, as well as our platform access offerings reached an all-time high of 772K Learning Sessions3, up 100% year-over-year, demonstrating product-market fit, as well as our ability to scale operations to meet the growing needs of our school district partners.”
Over the past year, Nerdy stock price declined by over 60%, By the end of Q3 2023 in September, the stock price went down from $4.8 to $3.2. The drop was the result of the loss in investor confidence owing to the reported financial results of the previous quarter. A net loss of $5.6 million in Q2 2023, owing to a higher operating expense, in addition, third quarterly revenue guidance reflected a low-point quarterly revenue. This was in part due to the normal seasonality decline and the resulting lower revenues from Learning Membership, legacy package customers, and Varsity Tutors for Schools when the schools and universities are on summer break.
Despite the growth forecast in the next quarters, the company expects a negative adjusted EBITDA in the coming quarter. In addition, Nerdy, Inc. (NYSE: NRDY) reported a net loss of $12 million in Q1 2024, although it was down from $32.2 million in the same period last year, Nerdy, Inc. (NYSE: NRDY) is far from reaching profitability due to higher expenses.
For instance, there was an increase in sales and marketing expenses due to the investment hike in the Varsity Tutors project pertaining to the school-go-to-market organization.
However, the company put forth strong growth quarter-over-quarter and has set a revenue guidance of $232 million to $246 million for the year 2024. Nerdy, Inc. (NYSE: NRDY) is focused on convergence and simplifying its business to derive continuous growth in the coming years.
Looking forward, the company aims to expand its product access to 10 million students in the U.S. this year. According to 7 analysts’ consensus, the stock has an average price target of $4.89 in the next 12 months, an upside of 194.8% from the current target price.
According to Insider Monkey’s database, 17 hedge funds held stakes in Nerdy, Inc. (NYSE: NRDY) and the total holdings value is $66.3 million.
7. Smart Rent, Inc. (NYSE: SMRT)
Number of Hedge Fund Holders: 17
Smart Rent, Inc. (NYSE: SMRT) is an enterprise that provides software and hardware solutions to rental property owners, homebuilders, residents, and developers. Smart Rent’s smart Apartment platform provides home automation that connects all devices to a single dashboard and empowers the community to automate daily operational processes.
In its financial highlights of Q1 2024, Smart Rent, Inc. (NYSE: SMRT) reported revenue of $50.2 million which decreased by 22% year-over-year. However, the gross margin improved reflecting the company’s strategic change to focus on profitable growth.
Hardware revenue decreased by $8.3 million while professional services revenue decreased by $9.3 million. The decline in hardware revenue was primarily the result of modifications in the product portfolio weighted by the new Alloy SmartHome hardware and a reduction in the number of units shipped. The decrease in the deployment of new units affected the revenue of professional services.
Although SmartRent, Inc. (NYSE: SMRT) underperformed in terms of revenue in other divisions yet there was a significant improvement in SaaS revenue of $11.9 million, a 32% year-over-year growth. The primary drivers for this growth were a 24% increase in units deployed coupled with upselling and cross-selling of comprehensive platform solutions.
This growth is attributable to the company’s commitment to improving the scalability of software solutions keeping in line with the growing demands of the rental housing market. The improvement in scalability was demonstrated by the launch of a new software feature, a self-guided home tour service upgraded with answer automation, this feature enhances the customer experience visiting properties and saves significant time and cost for the leasing teams.
On April 8, 2024, Smart Rent, Inc (NYSE: SMRT) announced the launch of a purpose-built multifamily-specific probe sensor called the Alloy SmartHome leaksensor+. The sensor is compatible with the SmartHome hub+ and integrates perfectly to detect any potential water leaks because it is resistant to the effects of humidity.
For the first quarter, the total gross margin improved to 38.5% from 14.0% a year ago while the SaaS gross margin improved to 75.1% from 73.4% a year ago. Total gross profit increased by over $10 million in Q1 reaching $19.4 million from $9.1 million last year. The margin expansion was primarily driven by the diversification of the product mix, in particular the launch of Alloy SmartHome hardware and operational improvements.
In addition, with a positive growth outlook, the company increased its number of units deployed by 24% reaching 750,000 units from 602,556 a year ago. Furthermore, Smart Rent, Inc. (NYSE: SMRT) posted an EBITDA of $400,000 beating its guidance and ending the second consecutive quarter with a positive EBITDA, zero debt, and a stable net cash position of $204.95 million.
Though Smart Rent, Inc. (NYSE: SMRT) has shown some resilience in gross margin and improved its EBITDA by narrowing its net losses to $7.7 million, the company missed its earnings expectations, it reported an EPS of $-0.0378 whereas the analyst’s expectations were $-0.02.
The decline in earnings expectations is attributed to the decrease in overall revenue, if we compare with Q1 2023, the revenue declined by over 22% in this quarter. In addition, the operating expenses increased to $29.6 million compared to $24.4 million in Q1 2023.
Furthermore, the company had a contractual dispute this year with a supplier which led to an accrual of $5.3 million. $5 million of which is to be paid for the expected return of the inventory and $300,000 is to be paid in terms of cash, this might have an impact on investors’ confidence and might affect the share price of the stock.
Speaking of the share price, over the past year, the company’s share price has declined by over 38%. For instance, on September 8, 2023, Bleeker Street Research presented a report and alleged that “smart locks” a commodity distributed by SmartRent company to multi-family properties were sourced from “a Croatian supplier that had a known history of security vulnerability”.
This report had a significant impact on stock price, it shattered investor’s confidence and the stock price fell about 9% and came down to $2.8 per share in just 3 days. Moreover, the company struggled to keep its share price stable owing to the changing market trends, slow growth in the rental market, increased supply, and changes in consumer preferences over time.
Despite the high volatility in share price, and headwinds like a challenging macro environment such as interest rates, slowing rent growth and the demand for community Wifi remains strong. The company is expanding its community Wifi offerings, benefiting from its strong financial position, moreover, the firm aims to capture a significant market share in the rental sector market. Looking forward, the company expects to break even on professional services margin and has announced its guidance of $260 – $290 million in revenue.
According to Insider Monkey’s database, 17 hedge funds held stakes in this growing penny stock and the total value of hedge fund holdings is $91.528 million.
6. Digital Turbine, Inc. (NASDAQ: APPS)
Number of Hedge Fund Holders: 20
Digital Turbine, Inc. (NASDAQ: APPS) is a fast-growing small-cap company that developed an independent mobile growth platform software that provides services to advertisers, carriers, publishers, and OEMs. On Device Solutions and Application Growth Platform are the two core operating segments of the firm.
Fourth quarter 2024 earnings reported revenue of $112.2 million and fiscal year 2024 total revenue of $544.5 million was down 18.24% year-over-year. However, the company reported a Non-GAAP EPS of $0.12 beating the expected EPS by $0.04.
There was a 9.8% YoY decline in On-Device Solutions revenue due to the reduction in mobile device sales and the loss of T-Mobile, a major business partner.
Moreover, the App-Growth platform revenue also reduced by 30% YoY due to weaker demand, a loss of low-margin customers, and the integration of legacy platforms.
Over the past years, the company’s revenue has declined and the share price has dropped over 78% in a year. The stakeholders have struggled over the years as the company has gone from a growth stock to a value stock selling at a discount in a decade. One might think what went wrong? There are two main causes responsible for this downfall, one is the loss of T-Mobile, an impactful customer of the company’s product delivering content on phones other than apps. Secondly, the problem with the Single-Tap technology’s adoption by the major players in the market.
Single-tap technology is a user-friendly solution to install apps on the phone with a single tap bypassing the troubles of the app store environment, the technology could help decrease the cost per app by dramatically increasing the conversions.
Digital Turbine, Inc. (NASDAQ: APPS) started monetizing the Single-tap technology on its networks, keeping in view the growth potential. It was a low-margin business but generated revenue quickly and got rewarded in the market. In 2021, the company announced at its Investor Day, that they were very close to having major partners integrate Single-tap into their platforms. The firm believed that integration and licensing of the technology with the likes of Twitter, SNAP, and Facebook could open new growth possibilities in the future. However, unfortunately, none of the major digital players adopted the technology and the subsequent scaling back of the hyped Single-tap platform led to the revenue and share price decline in the coming years.
Although Digital Turbine, Inc. (NASDAQ: APPS) struggled with generating revenues, the company is gradually recovering amid the macroeconomic challenges. The management has recently secured additional global device supply and introduced innovative complementary features to the devices that will act as a catalyst to derive growth and will help offset recent headwinds.
The newly re-engineered ad-tech platform has gained momentum with wins in the media and advertisers side and is all set to gain a substantial share in the market. For, instance GroupM, the leading global media-buying agency has included Digital Turbine, Inc. (NASDAQ: APPS) as the only global preferred partner for mobile.
In the recent earnings call of Q4 2024, the management announced a collaboration with Motorola extending its benefits to both existing and future Motorola devices and enhancing the mobile experience globally by using Adaptive Solutions and innovative SingleTap technology.
Motorolla has grown significantly and over the past three years has shipped between 40 to 50 million devices which is close to all the post-paid mobile devices shipped by other U.S. operators. Motorolla is among the few OEMs showing positive growth which is a promising opportunity for Digital Turbine, Inc. (NASDAQ: APPS) to expand its products globally.
In addition, Digital Turbine, Inc. (NASDAQ: APPS) invested $10 million into ONE- Store, a Korean alternative app store providing mobile content like games, multimedia, etc. This investment will bring the SingleTap technology to over 40 million ONE-Store users across South Korea.
On-device sales business is a valuable enterprise as OEMs are always keen to monetize their hardware and advertisers are always looking for more efficient solutions to reach maximum users.
According to Insider Monkey’s database, 20 hedge funds held stakes in the Digital Turbine, Inc. (NASDAQ: APPS). D E Shaw had the largest stake with shares valued at $10.6 million.
5. Telos Corporation (NASDAQ: TLS)
Number of Hedge Fund Holders: 22
Telos Corp. (NASDAQ: TLS), is a business that creates cutting-edge technology designed to provide security solutions. The company offers solutions for identity management, enterprise security, safe mobility, cyber risk management, and compliance. It offers a web-based software program for allocating traffic for organizational messages.
In Q1 2024, the company delivered $29.6 million in revenue, reflecting outperformance from Security Solutions which generated 63% of the company’s total revenue versus 56% in Q1 2023.
Revenue was up $600,000 compared to the company’s guidance range of $28 million to $29 million. In addition, the company reported an EPS of $-0.08 beating the expected EPS of $ -0.11. The firm has $93.92 million in cash and $11.60 million in debt, putting a net cash position of $82.31 million or $1.15 per share.
Outperformance in Security Solutions was primarily driven by effective cost management on fixed-price contracts. The platform delivered $18.6 million in revenue which was above the company’s top end of the guidance range with modest growth in all lines of business.
On the other hand, Secure Networks generated a revenue of $11 million in line with the top end of the company’s guidance. Moreover, the gross margin of $11 million, although slightly down from $13.5 million in Q1 2023, was still 37% and managed to outperform guidance of 34.3%. The improvement in gross margin was a result of better-than-expected utilization of labor and an efficient management of fixed-price contracts.
In the last quarter, the company announced that Telos prime partners received awards for new programs worth $525 million for Telos’ Security Solutions business for the next 5 years.
However, protests from incumbents and other bidders are common in awards of such a magnitude. Therefore, the finalization of such awards is subject to the resolution of protests which is expected by the second quarter based on the typical protest timelines. A favorable outcome of these protests can finalize these awards and is expected to ramp up the revenue in 2024.
In the past year, the company has put forth strong growth as one of the leading information security technologies. The share price has soared over 79% in the past year.
Since 2023, Telos Corp. (NASDAQ: TLS) has won positions on five new federal contract vehicles. This includes a strategic vehicle through which the U.S. Marine Corps will procure modern state-of-the-art capabilities for telecommunications and network infrastructures and employ these solutions in all Marine Corps bases, camps, stations, and posts globally.
In short, these five federal contract vehicles are set to provide Telos Corp. (NASDAQ: TLS) with the market access to compete and expand its share in the novel business opportunities that in aggregate present a $12 billion addressable market.
In addition, last year the Defence Information Systems Agency (DISA) and Telos Corporation inked a five-year contract to support report and critical information management for the agency. As per the agreement, Telos would process and distribute the agency’s data via its Automated Message Handling System (AMHS).
The US Department of Defence as well as foreign partners, such as the military services, joint chiefs of staff, combatant commands, intelligence communities, and other defense organizations, use AMHS as an organizational messaging solution.
Furthermore, the company’s Xacta business, a cyber risk management system has recently won awards from several key customers like the U.S. National Geospatial Intelligence Agency, the U.S. Defense Intelligence Agency, the U.S. Department of Energy, the U.S. 16th Airforce, and a leading cloud-computing company. All these positive developments if managed and delivered efficiently can provide catalysts to derive growth in the years to come.
However, this anticipated growth is subject to some factors like the timely delivery of agreed services depending on operational efficiency. Most importantly, the protests can delay these contracts, for now, the company has anticipated a reduction in revenue in the second quarter. In addition, an adjusted EBITDA loss with a range of $6 million to $8 million is expected in the coming quarter.
In Q1 2024 Earnings Call Transcript on May 10, 2024, The Chief Financial Officer of Telos Corp. (NASDAQ: TLS) gave the following statement while discussing the company’s outlook in the next quarter:
“For the second quarter, we expect revenue in the range of $25 million to $28 million and an adjusted EBITDA loss of $8 million to $6 million. We forecast Security Solutions revenue to be down high single digits to up mid-single digits percent year-over-year, primarily driven by a non-recurring perpetual license sale in the second quarter of 2023, offset by growth in TSA Precheck in 2024. We forecast secure networks revenue to decline low 40% to mid-30% year-over-year due to the ongoing reductions in backlog that we expect to persist sequentially throughout the year. Our second quarter guidance, combined with our first quarter reported revenue, implies first-half revenue of $54.6 million to $57.6 million, and compares favorably with the approximately $55 million of first-half revenue that we outlined in the 2024 modeling inputs provided in the appendix of our fourth quarter earnings presentation. Overall, we expect total company revenue to return to sequential growth in the third or fourth quarter, subject to favorable resolution of protests.”
According to Insider Monkey’s database, 22 hedge funds were invested in Telos Corp. (NASDAQ: TLS) and holdings were valued at $43.83 million.
Masters Capital Management managed by Mike Masters is the largest stakeholder with total shares worth $12.48 million.
4. Porch Group, Inc. (NASDAQ: PRCH)
Number of Hedge Fund Holders: 22
Porch Group, Inc. (NASDAQ: PRCH), was launched in 2013 as a digital home improvement network service connecting homeowners to professionals. The company operates in two core segments: Insurance platform and Vertical Software.
The insurance platform offers consumers insurance solutions and warranty products to ensure their homes are protected. On the other hand, the Vertical sector provides software services to mortgage, title, and inspection companies through subscriptions. In addition, 11000+ small and large companies in the home improvement market use Porch platforms to improve their business operations and customer experiences.
Porch Group, Inc. (NASDAQ: PRCH) in its earnings press release for Q1 2024 reported revenue of $115.4 million, a growth of 32% or $28.1 million compared to the previous year. In addition, the cost of revenue grew 10% to $40 million, this growth was largely driven by improved performance of the Insurance segment including an increase in premium per policy.
Adjusted EBITDA improved $5 million compared to Q1 2023 despite weather-linked claims. Furthermore, the company successfully managed to renew its reassurance on favorable terms which will likely boost the financial confidence and improve profitability.
Moreover, Porch Group, Inc. (NASDAQ: PRCH) signed a strategic business agreement with a management consulting company, Aon Corp. Both parties entered a $30 million agreement, Aon paid $25 million payments upfront to the Porch Group and $5 million will be paid in the next four years. In addition, the company’s software business continues to roll out innovative product enhancements to strengthen client retention.
For instance, ISN (Inspection Support Network), a leading inspection brand of Porch launched around 20 core feature upgrades last year. These enhancements included the Florida wind mitigation inspection template and Flexfund, these upgrades allow customers to pay for services up close. ISN revised its inspection fee after the upgrade and increased it by 20%.
Working towards the aim of improving operations, Porch sold its insurance company, EIG, for about $12 million concentrating on leads from outside agencies, which are more lucrative considering the expenses of maintaining an internal agency. This move highlights the firm’s forward-thinking approach focused on reducing expenses and amassing profit.
Although the revenue jumped 32% in this quarter, the company reported an EBITDA loss of $16.8 million which was above expectations. The increase in loss was driven by an early Texas Spring Storm Season and a decline in Verticle software revenue due to a reduction in demand for moving services and corporate relocations.
The insurance segment margin was influenced by $36 million of net catastrophic claims which were $8 million worse than expected driven by $20 million of gross losses due to insurance claims in the wake of a Texas hailstorm that took place early in March. The company faces ongoing headwinds with challenging unexpected weather events in the wake of climate change which has introduced unpredictability in the financial performance.
In addition, there was a decrease in gross written premium in the insurance segment as the firm reduced risk through a decision of not to renew higher-risk policies.
Though the company is facing headwinds, analysts predict that in the upcoming fiscal year, the corporation will make significant strides toward cutting losses. Porch benefitted greatly from the current agreement with Aon as well. Analysts have given the stock a “Buy’’ rating and on the basis of 5 analysts’ consensus, the average price target is raised to $6.75, an upside of 222.97% from the current share price.
According to Insider Monkey’s database, 22 hedge funds held stakes in the Porch Group, Inc. (NASDAQ: PRCH) combined holdings valued at $52.43 million.
3. Blend Labs, Inc. (NYSE:BLND)
Number of Hedge Fund Holders: 24
Blend Labs, Inc. (NYSE: BLND) is a cloud-based software platform that operates and empowers a digital interface between consumers and financial service firms. It provides cloud-based solutions to the firms in finance sector. Blend Platform and Title365 are the two core segments of the company’s software operation.
A range of products are available through the company’s Blend Builder Platform, which enables digital-first customer journeys for credit cards, deposit accounts, auto loans, mortgages, home equity loans, and lines of credit. Title365 was acquired in June 2021 with a deal of $422 million, the subsidiary provides professional and consulting services, as well as title search procedures for title insurance policies, escrow, and other closing and settlement services.
According to the Q1 2024 performance highlights, Blend Labs, Inc. (NYSE: BLND) reported revenue of $34.95 million comprising Blend Platform revenue of $23.8 million and Title365 segment revenue of $11.1 million. Mortgage suite revenue decreased by 15% year over year, but the company stabilized and outperformed analyst expectations due to a 29% increase in Consumer Banking Suite revenue of $6.7 million.
In addition, Professional services revenue increased 21% year-over-year to $2.1 million in q1 2024. The company reported an EPS of $-0.06 marginally beating the expected EPS of $-0.07.
As of March 31, 2024, Blend had cash, cash equivalents, and marketable securities, including restricted cash, totaling $135.3 million with total debt outstanding of $140.0 million in the form of the Company’s term loan, which was repaid in full in April upon the investment from Haveli. The investment has paved the way for the company to save an expected $18 million in annualized interest expenses boosting the path to generate positive cash flow soon.
The establishment of a strategic partnership with Haveli Investments proved to be a cornerstone that aided the company in improving its cash flow and acquiring debt-free status. This investment is poised to further strengthen the long-term business relationship that is expected to enhance the company’s product and technology development, go-to-market objectives, and operational framework.
In addition, the company is expanding its customer base and has made progress in deploying new customers, including a partnership with the Navy Federal Credit Union. This integration will enable members to open new accounts easily, with an enhanced user interface that allows identity verifications, new account funding, and membership confirmation.
Despite improvements in revenue and a decrease in operating costs, the company still has a negative free cash flow of $1.3 million in Q1 2024 and is yet to reach profitability. The macroeconomic challenges, high interest rates, and inflation can have a potential effect on customer decisions and market dynamics.
Furthermore, there is an ever-growing market competitiveness in the mortgage and consumer banking sectors. Therefore, the company needs to keep innovating and improving its platform’s technology to stay relevant, and that may risk the company’s broader operations. Regulatory changes and compliance requirements are additional headwinds that can pose a risk to the company’s operational strategies.
According to Insider Monkey’s database of hedge fund sentiment, 24 hedged funds held stakes in Blend Labs, Inc. (NYSE: BLND), and Millennium Management Fund run by Israel Englander had the largest stakes with 4.73 million shares valued at $15.39 million.
2. Aurora Innovation, Inc. (NASDAQ: AUR)
Number of Hedge Funds Holders: 27
Aurora Innovation, Inc. (NASDAQ: AUR) is a self-driving vehicle technology company that is focused on developing and operating Aurora Driver, a platform that integrates software, data services, and hardware that can be installed in cars for autonomous driving.
Aurora driver is a self-driving system designed to operate multiple types of vehicles from ride-hailing passenger vehicles to freight-hauling trucks to enhance transportation safety and efficiency. Aurora is working with a lot of industry leaders in the transportation ecosystem like Toyota, Uber, Uber Freight, Ryder, FedEx, Volvo Trucks, and Werner.
Since 2021, Aurora’s autonomous trucks have carried goods over 1 million kilometers on public highways. However, there was always a human safety driver sitting in those self-driving heavy vehicles. Ever since there have been only three minor crashes involving those trucks, the company claims that all these crashes were due to the mistakes of other drivers changing lanes on the road. Moreover, no one got hurt, and trucks always pulled off safely to the side of the road. In the U.S. the progress on self-driving vehicles has faced delays due to unfortunate crashes that add up new rules to enhance safety.
Aurora and other selfless driving companies argue that there has been a lot of time and effort invested in ensuring the safety and readiness of these autonomous vehicles. In addition, the advanced laser and radar sensor technology allows these vehicles to analyze the traffic far better than humans which makes them more efficient and safer.
Aurora Innovation, Inc. (NASDAQ: AUR) has attained a 95% autonomy readiness measure signaling a significant advancement towards their goal of user safety, efficiency, and readiness of their autonomous vehicle driving technology.
The company’s innovation showed promising results in terms of road safety tests, including its adaptability to navigate complex road scenarios with quick responses ensuring safety. The system can perceive 360 degrees of the operating environment, and with its advanced modeling support can anticipate and respond to the unpredictable road behavior of other drivers.
This achievement provides an opportunity for investors looking to capitalize on the market of self-driving technology in the years to come. Research suggests that the demand for autonomous vehicles is likely to expand in the future, the market is expected to grow from $52.09 billion in 2023 to $677.23 billion in the year 2031.
Despite recent innovations, the company managed the operating expenses within the planned limits and maintained a robust balance sheet showcasing $1.2 billion in cash and investments, and a net cash of $998 million. In Q1 2024, the company reported an EPS of $-0.11, beating the analysts’ expectation of $-0.14. Operating expenses were $208 million in Q1 2023 which came down by 7.2% to $193 million in Q1 2024.
Despite the progress in autonomy readiness, the company still needs to address the final validation and safety claims before commercial launch. In addition, to fund these projects the company used approximately $150 million cash on operations although managed still represents a significant expense.
Furthermore, the company needs to make prepayments for hardware components so that there can be a ready supply for a smooth commercial launch of autonomous vehicles. This scenario creates a vulnerability linked to dependency on the supply chain as any disruption in the supply chain can affect or delay the launch.
According to Insider Monkey’s database, 27 hedge funds held stakes in Aurora Innovation, Inc. (NASDAQ: AUR) and the total holdings are worth $160.8 million.
1. Grab Holdings Limited (NASDAQ: GRAB)
Number of Hedge Fund Holders: 37
Grab Holdings Ltd (NASDAQ: GRAB) is a multinational software developer company that is based in Singapore. It mainly operates three segments of super apps: food delivery, ride-hailing, and online payment services on smartphone devices. The company operates in over 700 cities in 8 Southeast Asian countries: Singapore, Cambodia, Myanmar, Indonesia, the Philippines, Malaysia, Thailand, and Vietnam.
The firm also provides digital insurance and lending services to fulfill the financial requirements of merchants and consumers. Some apps are listed as GrabShare, GrabCar, GrabFood, GrabMart, and GrabInvest, etc. In 2023, Fast Company, an American Business Magazine listed Grab Holdings Ltd (NASDAQ: GRAB) as one of the most innovative companies in the Asia-Pacific region.
Grab Holdings Ltd (NASDAQ: GRAB) has a strong presence in the Southeast Asian ride-hailing and food delivery business. For instance, in 2018 the company announced a partnership with Uber and acquired Uber’s Southeast Asia operations. Furthermore, Grab Holdings also announced a bid to acquire Transcab in July 2023. However, the deal is in the pipeline and is being reviewed, if it goes through this deal will further strengthen Grab’s position in the ride-hailing market.
In its first quarter, 2024 financial highlights, the company reported 24% year-on-year growth and generated a revenue of $653 million in the FQ1 2024 driven by the growth of sales in all segments amid reduced On Demand incentives as a percentage of On-Demand GMV.
The food delivery business and ride-sharing business grew by 19% and 27% respectively and outperformed analysts’ consensus estimates despite seasonal impacts from Chinese festivals and the Ramadan fasting period in the first quarter. While these figures are impressive, an important development is that the company upgraded its monthly transacting users to 38 million in this quarter which grew by 5 million users YoY.
Furthermore, the On-Demand Gross Merchandise Value (GMV) improved by 18% year-on-year owing to the increased consumer demand for mobility and delivery operations.
The company has managed to reduce its losses by reducing operating expenses. The first quarter’s operating loss of $75 million improved by $129 million YoY mostly due to higher revenue and decreased general and administrative costs.
A constant yearly growth, net cash of $4 billion or net cash per share of 1.04$, and a reduction in operating cost are some of the factors that led to the analyst consensus of “Strong Buy’’ for the stock. 7 analysts set the average price target of $5.14 an upside of 45.82% from the current price target.
The quarter’s loss of $115 million improved by $134 million YoY mostly because of gains in Group Adjusted EBITDA and decreases in share-based compensation and net interest costs. In Q1 2024, the company reported an all-time-high adjusted EBITDA of $62 million driven by a robust performance across the board. Keeping in view the growth potential, the firm raised its adjusted EBITDA guidance for the full year to a range between $250 million and $270 million.
On May 15, 2024 Earnings call, Peter Oey, Chief Financial Officer of Grab Holdings Ltd (NASDAQ: GRAB) highlighted the improvement in EBITDA and stated:
“We continued to drive profitable growth in the first quarter, as we achieved another record Adjusted EBITDA,” said Peter Oey, Chief Financial Officer of Grab. “As we drive growth across our business, we remain focused on continued improvements in profitability as demonstrated by our ninth consecutive quarter of Group Adjusted EBITDA expansion while improving shareholder returns and managing our balance sheet. Pursuant to our $500 million share repurchase program, we have repurchased approximately $97 million worth of Class A ordinary shares in March, and also paid down the remaining $497 million balance of our Term Loan B.”
Although Grab Holdings Ltd (NASDAQ: GRAB) has put forth strong revenue growth and reduced its operational costs, the company is yet not profitable. According to analysts in the transportation industry, the company is on the verge of reaching a breakeven given the quarter-over-quarter performance and is expected to be profitable in 2025.
Furthermore, the company has the potential to expand further in the ever-growing market of Southasia which has a population of over 675 million people.
According to Insider Monkey’s database, 37 hedge funds held stakes in Grab Holdings Ltd (NASDAQ: GRAB) and Tiger Global Management LLC group managed by Chase Coleman and Feroz Dewan has the highest stakes of 66.8 million shares having a value of $209.75 million.
While we acknowledge the potential of Grab Holdings as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Grab Holdings but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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