PowerSchool Holdings (PWSC) Stock Forecast & Price Target

PowerSchool Holdings Inc. demonstrated strong financial performance in its recent quarter, with adjusted net income and adjusted earnings per share (EPS) rising by 17.0% and 14.6% year-over-year, reaching $49.0 million and $0.24, respectively. Free cash flow for the third quarter of 2023 was notably robust at $211.2 million, reflecting a remarkable margin of 116.0%, while year-to-date free cash flow rose by 38.1% year-over-year. The company also experienced significant revenue growth, particularly in license and other revenue, which surged by 130.3% year-over-year, contributing to strong billings and outperformance compared to consensus estimates, underscoring its solid market position and future growth potential.

PowerSchool Holdings Inc. faces a challenging financial outlook, primarily due to a decrease in net revenue retention (NRR) stemming from variability in large deals, which has negatively impacted revenue growth projections for the upcoming fiscal year. Management's guidance indicates a sequential decline in margins as the company invests in the newly acquired SchoolMessenger, which, combined with anticipated lower services revenue and increased competition, suggests the potential for a significant downturn in revenue and margins. The company's adjusted EBITDA growth, although slightly raised, reflects caution and aligns with a broader expectation of reduced tech spending and difficulties in expanding its customer base, which could further compress its valuation multiples relative to peers.