3. Clarivate (NYSE:CLVT)
5 Year Revenue CAGR: 21.72%
Average Upside Potential as of November 14: 45.58%
Clarivate (NYSE:CLVT) is a leading global provider of transformative intelligence. It offers a range of solutions across 3 segments: Academia & Government, Life Sciences & Healthcare, and Intellectual Property. Its products support academic research, intellectual property management, drug discovery, and regulatory compliance. It serves a diverse client base, including corporations, universities, law firms, government agencies, and other professional services organizations.
The company recently announced disappointing financial results for the third quarter of 2024. The company’s revenue declined by 3.86% to $622.20 million, primarily due to a significant decrease in transactional and other revenue. This reliance on transactional revenue has proven to be a major weakness, as it is highly susceptible to market fluctuations and economic downturns.
To address this issue, the company has outlined a comprehensive value-creation plan. This plan focuses on several key areas, such as shifting the focus to recurring revenue and prioritizing subscription-based models, which provide more predictable and stable revenue streams and reduce the reliance on volatile transactional revenue.
Additionally, the company will invest in its sales team and improve sales strategies to boost sales and customer retention. This includes better territory alignment, improved incentive plans, and enhanced customer engagement. Clarivate (NYSE:CLVT) will also be accelerating product innovation to introduce products and services that meet evolving customer needs.
As the company aims to improve its financial performance, increase revenue, and enhance profitability, it’s confident that these initiatives will position it for long-term success.
Cove Street Capital Small Cap Value Fund stated the following regarding Clarivate Plc (NYSE:CLVT) in its Q2 2024 investor letter:
“We also added a position in Clarivate Plc (NYSE:CLVT), a data services provider that operates across academic research, intellectual property, and life sciences. We came to the investment from cross-work in another holding, Research Solutions (ticker: RSSS). Ultimately this company sucks in data from participants in the industry, aggregates it, and provides value added services and tools back to those industry participants. The power is in providing customers access to the aggregate. This was a private equity roll-up of a bunch of different data assets that paid too little attention to product innovation, leading to a period of stagnating growth and repeatedly missing guidance. The business of selling many tools and services on a pile of fixed cost assets (data) remains tremendous as can be seen by Clarivate’s mid-to-high 30% EBITDA margins and strong returns on invested capital. With new management and board members in place and 18 months of an “investment cycle” under their belt, we view the risk/reward of CLVT to be favorable at these levels, with a strong upside case if they can reinvigorate growth to their target levels.”
