Morningstar | NICE Updated Forecasts and Estimates from 10 Apr 2019
We are raising our fair value estimate for Nice to $130 per ADR from $118 and maintaining our narrow moat and stable moat trend ratings. We believe that Nice is in the later stages of transforming its business model into a true enterprise software company and becoming more deeply ingrained in the daily workflow of contact center agents. Nice is a provider of workforce engagement management, or WEM, and workforce optimization, or WFO, software applications that support call center interactions and employees through speech analytics, omnichannel recording and analytics, employee scheduling, and performance feedback modules. In 2015, Nice divested two security-related business units and acquired inContact and Nexidia the following year for $1.1 billion. In 2017, Nice launched CXone, a cloud product that bundled its historical strength in WEM/WFO applications with inContact’s cloud contact center infrastructure offering and Nexidia’s advanced omnichannel analytics. The new acquisitions and product cloud offering provide Nice with a much clearer product road map to allow for sustainable growth opportunities for the foreseeable future. The business transition toward more of a subscription model should also lead to more predictable revenue, as seen by the recurring revenue increase from 53% in 2016 to 70% in 2018.Robotic process automation, or RPA, could also be a key growth driver in coming years. In contact centers, RPA combines artificial intelligence with desktop analytics to track an agent’s screen navigation and mouse clicks to eliminate manual, repetitive processes. RPA implementation can help free up employees to focus on higher-value issues, reduce average interaction time, improve response times, and lead to happier customers and employees. We believe that the growth of this segment far outpaces Nice’s overall growth rate after the company closed several seven-figure deals for RPA in 2018.
Adoption of products like RPA can have to two to three times revenue uplift potential in the cloud compared with on-premises and can be deployed at very low incremental cost, helping expand gross margins. Additionally, CXone adoption would represent a full suite out of the gate, providing further improvement potential to gross margins as well as the bottom line.
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