Innodata INOD is scheduled to report fourth-quarter 2024 results on Feb. 20.

For the fourth quarter, the Zacks Consensus Estimate for revenues is pegged at $53.12 million, suggesting a 103.45% rise from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for earnings is pinned at 22 cents per share, indicating an increase of 340% from the prior-year quarter’s reported figure. The figure has remained unchanged over the past 30 days.

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Innodata has a positive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 400%. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 400%.

Earnings Whispers for INOD

Our proven model does not conclusively predict an earnings beat for Innodata this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

INOD has an Earnings ESP of 0.00% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Note for INOD Ahead of Q4 Results

Innodata appears well-positioned for another strong quarter building on its impressive momentum from the third quarter. The company's strategic focus on providing critical data engineering services to Big Tech companies developing generative AI models has proven highly successful.

The company's third-quarter performance was exceptional, delivering record revenues of $52.2 million, representing 136% year-over-year growth. For the fourth quarter, management projects revenues between $52 million and $55 million, suggesting continued strong execution and indicating 88-92% full-year growth for 2024. This guidance appears achievable given the company's expanding relationships with major tech clients.

A key growth driver has been Innodata's ability to secure and expand relationships with Big Tech customers. The company now counts five of the "Magnificent Seven" tech companies among its clients, along with other prominent players in AI development. The recent addition of a major social media platform as its eighth Big Tech customer demonstrates Innodata's growing market presence in the AI data engineering space.

Innodata's focus on supervised fine-tuning data for AI models positions it well as Big Tech companies continue to invest heavily in generative AI development. A recent Morgan Stanley report projects combined CapEx for Amazon, Google, Meta and Microsoft to reach approximately $300 billion in 2025, with significant portions allocated to AI development and training data.

The company's strong balance sheet, with $26.4 million in cash as of the third quarter, provides flexibility to invest in growth initiatives. Profitability metrics have also improved significantly, with third-quarter adjusted EBITDA reaching $13.9 million, or 27% of revenues, representing a five-fold increase from the second quarter.

Looking ahead, Innodata's expanding customer base, strong execution in its core business, and the growing demand for AI training data suggest continued momentum. The company's Agility platform, which saw 26% year-over-year growth in the third quarter, provides an additional growth vector as it incorporates new generative AI capabilities. Given these factors, investors may want to consider establishing or adding to positions in INOD ahead of fourth-quarter earnings, as the company appears well-positioned to benefit from the ongoing AI revolution.

INOD Price Performance & Stock Valuation

INOD shares have skyrocketed 557.4% in the trailing 12-month period, outperforming the Zacks Computer and Technology sector’s appreciation of 26.2% and the industry’s return of 5%.

1-Year Performance

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While INOD stock trades at a premium with a 6-month forward 12-month P/S ratio of 7.06x compared with the Zacks Computer – Services industry average of 1.91x, this premium valuation appears justified given the company's strong growth prospects and strategic positioning in the generative AI (GenAI) space.

INOD’s P/S F12M Ratio Depicts Stretched Valuation

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Morgan Stanley has projected combined capital expenditures of $300 billion in 2025 and $337 billion in 2026 for Amazon AMZN, Alphabet GOOGL, Meta Platforms META and Microsoft on GenAI and large language model-enabled advancements. By focusing on Big Tech’s increasing investments in GenAI, Innodata has positioned itself as a key partner for data engineering, particularly in creating supervised fine-tuning data for training advanced AI models.

Investment Thesis

Innodata presents a compelling investment opportunity as a key player in the AI data engineering space. With five of the "Magnificent Seven" tech companies as clients and strong third-quarter results showing 136% year-over-year revenue growth, the company is well-positioned to benefit from increasing AI investments. Management's guidance for fourth-quarter 2024 suggests continued momentum, projecting revenues of $52-55 million. The company's focus on supervised fine-tuning data for AI models, expanding customer relationships, and improving profitability metrics make it an attractive investment ahead of fourth-quarter earnings, particularly as Big Tech companies accelerate their AI development spending.

Conclusion

Innodata represents an attractive investment opportunity ahead of fourth-quarter 2024 earnings, given its strong positioning in AI data engineering, expanding Big Tech client base, and robust revenue growth trajectory. With management guiding for $52-$55 million in fourth-quarter revenues and ongoing momentum in AI investments from major tech companies, INOD appears well-positioned to deliver continued strong performance for investors.

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