It’s Tuesday, so it’s time for me to discuss one or more companies in Barchart.com’s Top/Bottom 100 Stocks to Buy. 

Of the companies in the top 10, Arizona-based AudioEye (AEYE) made the most significant move on Monday, moving up 17 positions into 9th spot. The company provides a digital accessibility platform that enables companies of all sizes to comply with WCAG (Web Content Accessibility Guidelines) and ADA (Americans with Disabilities Act) online standards. 

May 16 was Global Accessibility Awareness Day (GAAD), a day dedicated to reminding people more needs to be done to make the digital world more accessible to over one billion individuals with some disability. 

Winnipeg-based Dasch Foundation’s website explains why digital accessibility matters.  

“Today we live in an incredibly digital world, yet 98% of website home pages have at least one failure, according to the Web Content Accessibility Guidelines created by the WorldWide Web Consortium,” states Dasch’s website discussing this vital subject. 

I’ve worked in and around the financial services industry for most of my adult life. I've always been interested in digital accessibility for those with disabilities. For many years, I volunteered at the Canadian National Institute for the Blind (CNIB) in Toronto, reading books on digital devices. 

As an investor, I always wondered how visually challenged people can stay informed about investments. AudioEye is a company that works to make this possible.

Admittedly, I knew little about AudioEye before this morning, but I’m determined to learn more.  

In the meantime, here are some reasons you might want to take a closer look at this small-cap stock. 

Digital Accessibility Requires Humans

The first thing investors might assume about AudioEye is that AI would make its platform vulnerable to irrelevancy. After all, if I’m visually impaired, I ask CoPilot for help. If I can’t speak, I can type in my request, etc. 

However, as Forbes contributor Steven Aquino discussed in a January interview with the company’s newly-appointed Chief Accessibility Officer, Mike Paciello, humans are essential to providing greater digital accessibility. 

“Paciello pointed to the rise of artificial intelligence and automation as one example of where discrepancies lie. Although it is true AI and automation has merit for accessibility, the reality is making technology accessible and equitable requires a human component,” Aquino wrote on Jan. 31.  

“Good accessibility, Paciello told me, requires things like professional services, usability testing, and quality assurance testing—all of which can technically be done by machine but is most effective when humans are involved in the processes.”

Importantly,  as Paciello believes, the company uses people with disabilities in its software development, which makes it more likely that its technology will work for its clients and their end users. 

Paciello’s experience with accessibility technology is integral to scaling its platform so that it isn’t forever a small cap. 

AudioEye’s Customer Base Continues to Grow

In the 2023 10-K, AudioEye notes that it had 110,000 customers at the end of 2023, up 28% from 86,000 at the end of 2022, 34% higher than 82,000 in 2021, and 244% higher than 32,000 at the end of 2020. 

In that time, revenue has grown by 53% from $20.5 million in 2020 to $31.3 million in 2023, a compound annual growth rate of 15.2%. On a revenue per-customer basis, it’s fallen from $640.63 per customer in 2020 to $284.54 in the past year. 

Part of the reason for the decline is its business model. It sells monthly, yearly, or multi-year subscriptions with longer-term pricing lower than every month. So, what it loses in monthly revenue, it gains in longer-term recurring revenue, making revenue generation more stable.

It generated 60% of its annual recurring revenue (ARR) -- almost 100% of total revenue -- from its Partner and Marketplace channel in 2023 and 40% from the Enterprise channel, which are larger customers. Last year, the former’s ARR grew by 13%, while the latter fell by 5% due to lower revenues from a large customer. 

Ideally, you would like to see both types of ARR growing, but the occasional step back due to a large customer changing their spending commitments will happen. That’s life. 

AudioEye reported reported record Q1 2024 results on April 23. In the month since, its stock has gained 112%.

Why?

Its business continues to grow while managing expenses better. It generated record revenue of $8.1 million in the first quarter, 4% higher than a year earlier. This, combined with a 14% decline in operating expenses year-over-year, resulted in a positive adjusted EBITDA of $0.9 million, up from a $100,000 adjusted EBITDA loss a year ago. 

It finished the first quarter with 112,000 customers, 1.8% higher sequentially and 17.9% higher than Q1 2023.

Based on the good news, it expects revenues of $34.5 million in 2024, 10.2% higher than this past year, with adjusted EBITDA of $5.0 million, 285% higher than a year ago. 

The Bottom Line on AudioEye

Based on the company’s earnings per share guidance for 2024 of $0.42, it trades at a high 58x those earnings. However, if it continues to sequentially grow its customer numbers over the next 4-8 quarters while maintaining a firm control of operating expenses, the multiple will seem, in hindsight, highly reasonable in 3-5 years. 

I will give this small cap more of my attention in 2024. I suggest you do the same.

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