Innodata Q4 Earnings Preview: Should You Buy, Sell or Hold the Stock?

Core Viewpoint - Innodata is positioned for strong performance in the fourth quarter of 2024, with significant revenue and earnings growth expected due to its strategic focus on AI data engineering services for major tech companies [1][5][18]. Financial Performance - The Zacks Consensus Estimate for fourth-quarter revenues is $53.12 million, indicating a 103.45% increase from the previous year [1]. - Earnings per share are estimated at 22 cents, reflecting a 340% rise year-over-year [1]. - The company reported record revenues of $52.2 million in the third quarter, representing a 136% year-over-year growth [6]. Growth Drivers - Innodata has secured relationships with five of the "Magnificent Seven" tech companies, enhancing its market presence in AI data engineering [7]. - The company is focusing on supervised fine-tuning data for AI models, aligning with the increasing investments in generative AI by major tech firms [8][17]. - Management projects fourth-quarter revenues between $52 million and $55 million, suggesting continued strong execution and an 88-92% full-year growth for 2024 [6][19]. Market Positioning - Innodata's strong balance sheet, with $26.4 million in cash, provides flexibility for growth initiatives [9]. - The company has demonstrated a positive earnings surprise history, with a 400% surprise in the last reported quarter [2]. - The stock has appreciated 557.4% over the past 12 months, significantly outperforming the sector [12]. Valuation - Innodata's forward 12-month price-to-sales (P/S) ratio is 7.06x, compared to the industry average of 1.91x, indicating a premium valuation justified by strong growth prospects [15]. - The company's profitability metrics have improved, with adjusted EBITDA reaching $13.9 million, or 27% of revenues, in the third quarter [10]. Investment Thesis - Innodata is seen as a compelling investment opportunity due to its strategic positioning in the AI data engineering space and strong revenue growth trajectory [18]. - The ongoing momentum in AI investments from major tech companies further supports the attractiveness of investing in Innodata ahead of its fourth-quarter earnings [19].