Is Verint Systems Stock A Buy?

Verint Systems Inc (NASDAQ:VRNT) is a customer engagement vendor that saw share prices plummet in February 2021. This is because it spun off its Cognyte Software (NASDAQ:CGNT) division into a separate public company.

The move diluted the company’s shares, but will that spinoff make Verint Systems stock a Buy?

Don’t let the 35 percent price dip fool you – Verint share prices dipped by $25.00, but its shareholders also own CGNT stock that’s worth over $30.00. The split companies can now focus on their individual missions.

According to Verint’s press release, its mission is to grow as a “pure-play customer engagement vendor.” Meanwhile, Cognyte is a security analytics firm that spun off from Verint’s Cyber Intelligence division. Both goals are important, and investors can decide which aligns with their individual investment strategy.

Can Verint Systems engage investors’ need for growth or will it leave their portfolios vulnerable to a crash?

Verint Systems Has Google As A Customer

Verint Systems itself started as a division of now-defunct Comverse Technology.

At the time, it focused on digital call recording. This was in an era when the world was still using analog tape recorders. A liaison of sorts was formed between governments and telecom companies, but the shift online changed the game.

Think of it like the National Security Agency (NSA) monitoring Google’s transoceanic cables long before there was a Google. Of course, with the move to today’s internet came new monitoring capabilities. In fact, Google is one of Verint’s customers.

It spun off and went public in 2002 while expanding its data analytics capabilities and client base globally. The company’s products included speech analysis and IP surveillance monitoring software often used by law enforcement and other government agencies. It also makes biometrics and other software.

These systems are used in airports, government buildings, and other public spaces. In fact, the company is a subcontractor for the Transportation Security Administration (TSA) through Unisys Corporation (NYSE:UIS).

But all of this got rolled into Cognyte – Verint uses these same technologies in a different way. Instead of monitoring social media for terrorists, it’s seeking ways to connect brands to customers. It’s fixing corporate work flows through the entire customer journey.

It’s highly concentrated on call centers and other customer contact divisions.

Verint connects people and bots throughout the business for clients like BMW, Google, and Navy Federal Credit Union. It helps scale a distributed workforce to optimize customer engagement, and that has some bullish investors believing it’s worth buying.

Is Verint Systems Stock A Buy?

Verint Systems started 2021 with a market capitalization of $5 billion and change, although the spinoff brought its valuation down to about $3.32 billion. 

The investment is strictly in the company’s customer engagement and workflow solutions. Investors interested in government monitoring should investigate Cognyte Software.

VRNT share price fell to a 52-week low of $32.44 and was slow to recover until the announcement of its split. At that point the share price skyrocketed to a high of $77.70 before settling around $50.00 per share by February.

The company generated over $600 million in revenue for the first nine months of 2020. It’s impressive at first glance, but it in fact represents a 6.8 percent year-over-year decrease.

Still, Verint has a solid software-as-a-service (SaaS) revenue model that saw 23.3 percent GAAP-adjusted growth during the period.

Cloud revenue also grew 17.8 percent year-over-year. And it’s a profitable business that earned about $400 million in the first nine months of 2020.

Of course, there are associated risks with the company.

Risks Of Buying Verint Systems Stock

Cognyte created a drag on company revenues because the economy shut down many places where the TSA operates. If people can’t go on cruises or flights, there’s less demand for monitoring solutions. As public areas reopened, masks have become more prolific, and demand for intelligence software is heightened.

Those are all temporary problems, and shedding that business at a low only gives the company a temporary boost. It needs to continue growing its clientele during a rough economy, and that could be a difficult play moving forward.

Verint is doing well because the pandemic shifted businesses to a distributed workforce. This isn’t anything new, but social distancing rules made it more immediately necessary. Once the hype dwindles and the economy recovers, its lack of diversification could prove to be a hard blow.

And the company isn’t alone in its quest – there are others looking to muscle in on its market share.

Can Verint Systems Competitors Win?

Business workflow solutions are a dime a dozen these days, and major competitors like Google (GOOG), Microsoft (MSFT), and Asana have skin in the game. Each runs more in the backend, however, and Verint’s biggest competition in the call center environment.

Customer engagement is an omnichannel endeavor that can take place on the phone, text, email, Twitter, and more. Managing this workflow across multiple agents at multiple sites isn’t easy, but providing a smooth conversation from the customer side is essential.

So long as it remains competitive, Verint has a chance. But you never know where the next disruptive solution may come from.

Is Verint Systems Stock A Buy? Conclusion

Verint Systems experienced a big stock crash in 2021, but it is deceiving. The data-driven company spun off its government monitoring side to focus on call centers and other customer contact avenues.

Instead of hunting for terrorists, the company is focused on keeping your brand’s customer-facing message cohesive across all communication channels.

It’s a great mission, but the company could end up missing its government security contracts when the economy recovers.

People will inevitably return to travel, and it’s unclear how many businesses can afford to upgrade their technology.

Still, a cheap price gives investors a ticket to ride at a much cheaper price and without the stigma of big brother. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.