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Open Text Corp. (TSE:OTEX)
TSX:OTEX

Open Text (OTEX) AI Stock Analysis

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Open Text

(TSX:OTEX)

74Outperform
Open Text presents a solid financial foundation with strong operational efficiency and profitability. The company's strategic focus on AI and cloud growth is promising. However, challenges such as revenue miss and macroeconomic disruptions temper the overall positive outlook. The stock could be appealing due to its low valuation and healthy dividend yield.
Positive Factors
Quarterly performance
Q2/25 results were above consensus, showing a beat in revenue and EBITDA.
Valuation
OTEX's valuation is considered undemanding given its recurring revenue profile and profitability.
Negative Factors
Guidance
Q3/25 guidance was below expectations, indicating organic growth challenges.
Lack of catalysts
There is a lack of a clear catalyst to drive value stocks like OTEX higher.
Product portfolio weakness
OTEX reduced its FY2025 guidance due to incremental weakness within the ADM and ITOM product portfolios.

Open Text (OTEX) vs. S&P 500 (SPY)

Open Text Business Overview & Revenue Model

Company DescriptionOpenText Corporation (OTEX) is a Canadian enterprise information management company that develops and sells software solutions and services to manage, process, and store digital information. Operating in sectors such as information technology and services, OpenText offers core products including enterprise content management (ECM), digital process automation, business network, and artificial intelligence solutions. The company serves a diverse range of industries, providing tools that enhance productivity and enable businesses to leverage data for better decision-making.
How the Company Makes MoneyOpenText makes money primarily through the sale of its software products and related services. The company's revenue model is largely based on licensing fees, where customers pay for the right to use OpenText's software solutions. This includes both perpetual licenses and subscription-based models, which provide a steady stream of recurring revenue. In addition to software sales, OpenText generates income through professional services, including consulting, implementation, and support services. The company also earns revenue from its cloud offerings, as businesses increasingly shift towards cloud-based solutions. Strategic partnerships with large technology firms and acquisitions of complementary businesses also play a significant role in OpenText's revenue generation by expanding its product offerings and customer base.

Open Text Financial Statement Overview

Summary
Open Text demonstrates strong financial performance with robust revenue growth, high profitability margins, and effective cash flow management. The balance sheet is stable, though increased leverage warrants monitoring. Overall, the company is well-positioned financially, with potential growth and profitability supported by strong operational efficiency.
Income Statement
85
Very Positive
The company exhibits strong revenue growth with a TTM revenue of $5.22 billion, up from $4.48 billion in the previous year, indicating a 16.52% growth rate. Gross profit margin remains robust at 73.23%, reflecting efficient cost management. The net profit margin improved to 12.55%, with a significant increase in net income. EBIT and EBITDA margins of 17.33% and 32.03% respectively, suggest healthy operational efficiency. Overall, the income statement reflects a positive financial trajectory with strong profitability.
Balance Sheet
75
Positive
The balance sheet shows a solid equity ratio of 30.02%, indicating a stable financial foundation. The debt-to-equity ratio at 1.61 reflects moderate leverage, which is common in the industry. Return on equity (ROE) has improved to 15.87%, showcasing effective use of equity capital. However, total debt has increased, which may pose future financial risk if not managed carefully. Overall, the balance sheet demonstrates stability with moderate leverage risks.
Cash Flow
80
Positive
The company maintains strong cash flow generation with a TTM operating cash flow of $857.65 million. Free cash flow has grown, indicating a positive free cash flow growth rate. The operating cash flow to net income ratio of 1.31 suggests efficient conversion of earnings to cash. The free cash flow to net income ratio is 1.08, reflecting strong cash conversion. Despite investing and financing challenges, the cash flow statement shows a healthy cash position.
Breakdown
TTMJun 2024Jun 2023Jun 2022Jun 2021Jun 2020
Income StatementTotal Revenue
5.22B5.77B4.48B3.49B3.39B3.11B
Gross Profit
3.82B4.19B3.17B2.43B2.35B2.11B
EBIT
904.39M887.09M516.29M644.77M740.90M503.53M
EBITDA
1.67B2.10B1.26B1.18B1.33B1.02B
Net Income Common Stockholders
655.26M465.09M150.38M397.09M310.67M234.22M
Balance SheetCash, Cash Equivalents and Short-Term Investments
1.28B1.28B1.23B1.69B1.61B1.69B
Total Assets
13.75B14.21B17.09B10.18B9.61B10.23B
Total Debt
6.65B6.69B9.25B4.47B3.87B4.48B
Net Debt
5.37B5.41B8.01B2.78B2.26B2.78B
Total Liabilities
9.62B10.01B13.07B6.15B5.51B6.23B
Stockholders Equity
4.13B4.20B4.02B4.03B4.10B4.01B
Cash FlowFree Cash Flow
708.67M808.40M655.37M888.70M812.45M881.83M
Operating Cash Flow
857.65M967.69M779.21M981.81M876.12M954.54M
Investing Cash Flow
2.06B2.06B-5.65B-970.96M-68.77M-1.47B
Financing Cash Flow
-2.76B-2.96B4.40B138.46M-924.55M1.27B

Open Text Technical Analysis

Technical Analysis Sentiment
Positive
Last Price39.42
Price Trends
50DMA
36.81
Positive
100DMA
38.28
Positive
200DMA
40.32
Negative
Market Momentum
MACD
0.79
Negative
RSI
63.82
Neutral
STOCH
90.71
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:OTEX, the sentiment is Positive. The current price of 39.42 is above the 20-day moving average (MA) of 37.60, above the 50-day MA of 36.81, and below the 200-day MA of 40.32, indicating a neutral trend. The MACD of 0.79 indicates Negative momentum. The RSI at 63.82 is Neutral, neither overbought nor oversold. The STOCH value of 90.71 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for TSE:OTEX.

Open Text Risk Analysis

Open Text disclosed 51 risk factors in its most recent earnings report. Open Text reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Open Text Peers Comparison

Overall Rating
UnderperformOutperform
Sector (60)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
TSDSG
77
Outperform
$13.56B70.1910.92%16.07%25.71%
75
Outperform
$1.47B17.3414.76%4.00%8.11%15.83%
74
Outperform
$10.19B11.5815.87%3.68%-8.74%307.82%
TSKXS
73
Outperform
C$5.56B402.152.32%15.14%-31.45%
67
Neutral
$1.13B35.3241.12%20.52%246.69%
63
Neutral
C$2.08B-5.18%23.95%39.68%
60
Neutral
$11.59B10.34-7.15%2.94%7.49%-10.88%
* Technology Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
TSE:OTEX
Open Text
39.42
-1.31
-3.21%
TSE:ENGH
Enghouse Systems
26.47
-1.62
-5.77%
TSE:DSG
The Descartes Systems Group
158.79
24.35
18.11%
TSE:DCBO
Docebo
37.04
-13.04
-26.04%
TSE:KXS
Kinaxis Inc
199.20
44.50
28.77%
TSE:LSPD
Lightspeed POS Inc
15.24
-4.70
-23.57%

Open Text Earnings Call Summary

Earnings Call Date:Apr 30, 2025
(Q3-2025)
|
% Change Since: 5.63%|
Next Earnings Date:Jul 31, 2025
Earnings Call Sentiment Neutral
Despite strong free cash flow and a strategic pivot towards AI, the earnings call highlighted significant challenges with revenue and bookings due to external economic factors. The company's commitment to AI and cloud growth is promising, but the immediate financial results and macroeconomic disruptions create a mixed outlook.
Q3-2025 Updates
Positive Updates
Strong Free Cash Flow
Record-free cash flow of $374 million, up 7% year-over-year, with a free cash flow margin of 30%.
AI First Strategy
Open Text has committed to an AI-first strategy, integrating AI across the organization and introducing new products like AI Aviators and My Aviator.
Cloud Revenue Growth
Cloud revenues grew by 3% year-over-year in constant currency, marking the 17th consecutive quarter of organic growth.
Capital Allocation Flexibility
The company plans to resume programmatic M&A and share buybacks with capital flexibility, returning to traditional capital allocation strategies.
Negative Updates
Revenue Miss
Total revenue was $1.27 billion, 50 basis points below the target range due to demand disruption caused by tariffs and other factors.
Enterprise Bookings Decline
Enterprise bookings were $151 million, down 8.4% year-over-year, attributed to macroeconomic disruption.
Customer Support Revenue Decline
Customer support revenue was slightly below expectations, impacted by ITOM and ADM license performance, the DXC contract, and FX.
Company Guidance
During the Open Text Corporation Third Quarter Fiscal 2025 Financial Results Conference Call, guidance was provided on several key metrics. The company reported total revenue of $1.27 billion, slightly below the expected range due to market volatility, particularly due to the disruption caused by auto tariffs. Cloud revenues grew by 3% year-over-year, marking the 17th consecutive quarter of organic growth. The adjusted EBITDA margin was 31.5%, and free cash flow reached a record $374 million, representing a 7% increase year-over-year. Despite challenges, Open Text reaffirmed its commitment to controlling areas like EBITDA, earnings, and free cash flow. The company announced an expanded business optimization plan aiming for annualized savings of up to $400 million, alongside a net reduction of 1,600 employees. Looking forward, Open Text adjusted its Fiscal 2025 revenue target to $5.1 billion to $5.17 billion and maintained its focus on strategic priorities, including competitive advantage, total revenue growth, and operational excellence, driven by its AI-first initiatives.

Open Text Corporate Events

Executive/Board ChangesBusiness Operations and Strategy
OpenText Appoints New Board Member for Strategic Growth
Positive
Nov 26, 2024

OpenText Corporation has appointed Fletcher Previn, Senior VP and CIO of Cisco Systems, to its board of directors, highlighting the company’s focus on refreshing its board with diverse skill-sets. Previn brings over 20 years of IT experience, including a significant tenure at IBM, and is expected to contribute to OpenText’s growth and modernization strategies.

Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.