Acquisitions and a new product: The sleepy Israeli stock that rose 35% in one day
The veteran video company, which lost 86% after its IPO, surged sharply following the launch of an AI product and reports that beat expectations. Will the acquisitions it made and its entry into the world of visual avatars breathe life into it against giants like Synthesia and Nvidia, or is this premature enthusiasm?
The Israeli company Kaltura, a video product firm from the Bnei Brak area, went public at the height of the hype during the COVID-19 period in the summer of 2021, crashed by 86% within ten months, and has since become a sleepy stock that barely receives attention from Wall Street analysts. The company, which provides a video player to giant firms like Amazon and Nvidia, and a system for managing video streaming for users and employees, operates in a field where annual growth has dropped to single digits, investor interest has waned, and companies have lost their way.
In fact, Kaltura's main competitors gave up and left the market. The popular video player Vimeo, which previously even held a development center in Israel, managed in 2021 to reach a valuation of 8.5 billion dollars after an IPO just a few months before Kaltura, but was sold in November last year for a valuation of only 1.3 billion dollars to a private Italian fund.
Brightcove also went through a similar path: after reaching a valuation of 1 billion dollars at its IPO in 2021, it was sold to the same Italian fund for only 233 million dollars at the beginning of last year.
Kaltura, which is currently traded at a valuation of only 267 million dollars, not much more than an average Israeli startup during its second or third private funding round, did not give up. Even the investors behind it, except for Goldman Sachs, have hardly sold their shares.
Last Wednesday, Kaltura surprised when its stock jumped by 44% at once after the publication of its quarterly reports. Although these were limited to a moderate increase in revenue and some improvement in forecasts, they managed to prove to the market that a new AI product it developed — an avatar software that assists users, employees, and students in their tasks via video call — is taking its first steps in the market and generating interest among customers.
After the unusual surge, the trading day closed with a 35% increase, and even if the stock fell slightly in the days that followed, Kaltura is still traded at a price 28% higher compared to the days before the quarterly report. However, the stock has risen by a total of 7% since the beginning of the year, compared to the S&P 500 index, which rose by 13%.
Trying to cool expectations
Was a 44% jump at once in Kaltura's stock justified, and is there surprising growth ahead that will put it on par with the big AI companies, or was this premature enthusiasm? In the investor call held shortly after the reports were filed, it seemed that the company was trying to cool high expectations. The AI agent that enables the video call with the avatar was launched only in the first quarter, and the company began selling it to its existing customers. However, it is only in the initial stages in the market, and the total contracts signed around it represent revenues for the company of only 1 million dollars — over several quarters.
That is, the revenues from the AI product for the second quarter are negligible relative to the company's revenues, which stood at 47 million dollars. Nevertheless, the company reports a backlog of 14 new deals that included AI components — double the previous record, nine of which include the company's video avatar agent software.
The company also reported that it is in negotiations to sell the avatar in about 500 deals representing an annual sales potential of 17 million dollars if all of them are signed.
The vast majority of the company's activity — and its source of profit — still lies in the veteran video business. Kaltura sells companies video streaming systems that allow them to create personal training videos for employees or customized lesson plans for students. To Nvidia, it enables the live broadcast of its marketing conference, GTC, and to send visitors or various users videos from the conference.
It manages similar activity for Amazon's giant conferences, ReInvent. Besides them, the company serves technology giants like Oracle, Cisco, Adobe, and Salesforce, banks like JPMorgan, Bank of America, Morgan Stanley, and Nomura, and consulting firms like PWC, Ernst & Young, and Accenture. In addition, Kaltura serves about half of the universities in the USA, including Harvard and MIT. According to estimates, most of the 500 deals on the table are related to the company's existing customers, and a third of them are related to potential customers.
Must make changes
The company reported revenue of 46.9 million dollars and an EBITDA of 5.9 million dollars — above the top end of its own forecast from the past, and a 44% increase compared to the corresponding quarter.
It also reported an 8% increase in revenue from existing customers compared to the corresponding quarter, an improvement in customer retention, and an increase in the annual revenue forecast to the top range of 185 million dollars, an increase of up to 4% year-over-year. At the same time, the company is still losing money overall, with an unadjusted loss of 5.5 million dollars, a media and telecom activity that continues to weaken, and weak cash flow — 2 million dollars from current operations in the entire last quarter.
To reach EBITDA profitability and return to a growth path, Kaltura had to make changes: after employing 900 workers at its peak, several waves of layoffs and organizational changes reduced its headcount to 600, half of them in the development center in Bnei Brak.
This is after it acquired two companies for the purpose of creating the avatar product: the Israeli e-self, which was sold for about 27 million dollars, and developed video avatars based on text-to-speech and speech-to-text technology, and creates a two-way conversation in real-time; and the Indian-Canadian company PathFactory, which was sold for about 22 million dollars, a provider of customized marketing and sales systems on websites, such as those of Cisco and Nvidia.
Shortly after the acquisition in April this year, Kaltura changed its vision for the first time in the last 20 years, from a company that provides customized video products for users, to a visual AI agent company.
Under the new vision, Kaltura seeks to provide virtual "service representatives" that accompany users or students on every screen, help them navigate between websites and documents, guide them regarding various tasks in the workplace, or teach them lesson plans in a way that recognizes them in a live conversation.
However, the new market that the Israeli Kaltura has entered does not operate in a vacuum: the main competitor in the field is Synthesia, a British unicorn that has already raised 540 million dollars at a valuation of 4 billion dollars — 15 times the value of Kaltura — from investors including giants like Nvidia and the Accel fund. Beyond several small Israeli competitors like Hour One and DID, the company actually competes with Nvidia, which is developing its own engine for creating avatars called "Omniverse Avatar," which allows its customers to create service agents, training, and sales representatives.
Kaltura has an advantage in that it already manages the video, webinar, and learning infrastructures of about 1,500 companies, so its avatar is connected to databases and existing systems and contains organizational knowledge that the company has acquired during its 20 years of existence, and is able to offer the service as a complementary product to existing customers. The company has also developed security layers over the years that may appeal to companies looking for experience in protecting video infrastructures in the field.
But does a total revenue from an AI product that does not exceed 1 million dollars justify a 28% increase in the stock price? SaaS companies in the AI field are traded at an average multiple ranging between 4 and 7 relative to annual sales, so Kaltura, which is traded at a multiple of only 1.4, still has room to rise. At the same time, and considering that the company declares that the revenues from the new product will only be seen starting from 2027, it is still too early to judge.
