Clarivate doubled their revenue to $2.5B in 4 years, yet the stock price fell by 4x

If you were to look at Clarivate (NYSE:CLVT) on December 31, 2020 you would see a company that recorded $1.25B of revenue for the 2020 calendar year trading at $29.71 a share. Fast forward to today, the same company is expected to bring in over $2.5B of revenue yet the price as of 10/10/2024 is trading at $6.79 a share. The company is trading at a forward P/E ratio of 8.83, reflecting a significant 56.16% discount to the sector median of 20.14. A dip in earnings in 2023 can be attributed to the price downtick, those are back in line with historical averages, but the stock price has yet to respond. We decided to take a look at the company and learn more and see if the company is poised for significant growth in the coming months.

Founded in 2016 as a spin-off of Thomson Reuters’ Intellectual Property and Science sector the company’s ultimate goal was to create a platform that could devote itself to providing insights on verticals such as life sciences and patent filing. Three years later, it went public at a valuation of around $4 billion and currently has over 45,000 customers. 

“Clarivate accelerates the pace of innovation by supporting the world’s innovators,” said Jay Nadler, Clarivate’s CEO at the time of its IPO. “This is an exciting milestone in Clarivate’s evolution that will open a wide range of future growth opportunities for the business and allow us to further invest in the brightest minds, game changing data science, and robust technologies.”

The worldwide analytics provider focuses on three end-market segments: Academia and Government, Life Sciences and Healthcare, and Intellectual Property. It collects vast amounts of data from a wide variety of sources, from scientific journals to patent sequences, and analyzes them to extract trends and insights. Its information is then used to develop products that accommodate each of the industries it serves. Its customer base is incredibly diverse, including over 25,000 libraries, the world’s top universities, pharmaceutical companies, law firms, and government agencies. 

“We have built a tremendous and talented team that is well positioned to steer the company to the next level,” former CEO Jonathan Gear said at the company’s Q2 2024 earnings call, a few days before stepping into a non-executive role. “We continue to focus on efficiently managing the business during the turnaround period at Clarivate, which has resulted in solid profitability and strong free cash flow.”

Acquisition driven growth

Clarivate’s huge portfolio of acquisitions has allowed it it to offer more all-inclusive services as compared to its competitors. 

In 2021 it acquired ProQuest for over $5 billion, a data provider for academic and research institutions. It provides access to a multitude of academic sources, such as cultural archives, dissertations, and even media content. The acquisition was the perfect accessory to Clarivate’s Web of Science tool, creating a more complete research platform and expanding on an already super-comprehensive database. 

Four years ago, it acquired CPA Global, a provider of intellectual property software that helps companies protect and maintain their IP assets. Gaining access to CPA Global’s extensive IP software allowed Clarivate to improve its IP management services.

In 2019, it acquired SequenceBase, a portal for patent sequence information (a standardized way of submitting biological sequence data) aimed at the biotechnology industry. Adding SequenceBase’s databases allowed Clarivate to expand its life sciences portfolio and deal with the increasing demand for sequence data. 

Clarivate’s acquisitions all complement its three main segments and products, which is what truly separates it from its competitors. 

Trio of product lines driving innovation

Clarivate’s three segments are intended to support individual industries in data management and research. Each sector also has its signature product that complements the company’s data-providing goals.

Web of Science is one of Clarivate’s bibliographic databases provided by the company’s Academia and Government sector. It operates as an extensive collection of academic journals and peer-reviewed articles, helping its users identify trends and determine the influence of specific scientific contributions.  In September of this year, they launched Web of Science Research Assistant, a chat interface that uses generative AI that allows researchers to get their information faster and extract more detailed insights. 

Cortellis is Clarivate’s flagship product for its Life Sciences and Healthcare sector. It provides AI-driven, real-time insights aimed at helping healthcare corporations. Mainly used to aid in drug development, it’s a hub of information on clinical trials, international regulations, and patents, extremely beneficial for biotechnology companies that need to make accurate and educated decisions regarding the understanding of legal landscapes. In May of this year, the company launched Epidieology Intelligence, a platform that evaluates thousands of patient populations and diseases from databases for pharmaceutical companies to easily gain an understanding of market sizes and demographics. 

Clarivate’s main IP management tool is Derwent, which focuses on analyzing patent data. By using the Derwent World Patents Index (DWPI) to simplify patent searching and gain access to an expansive collection of global patents, the product helps R&D teams and IP professionals manage and preserve their IP portfolios. 

Mixed Q2 Results And New Leadership For The DaaS Giant.

Clarivate’s 2024 Q2 results showed some mixed signals. While the company closed some major deals in the life sciences sector and saw the subscription to its Academia and Government grow by over 3%, its Q2 revenue was $650, a $19 million year-over-year decrease. Jonathan Collins, the company’s CFO, said that the majority of the second quarter decline was “due to the valley-path divestiture and the stronger U.S. dollar.” He added that the company is making investments in Clarivate’s product that will be released later this year, and is expecting growth in subscription revenue. 

“With our strong cash flow, we plan to take a more balanced approach to capital allocation during the second half of 2024," Collins stated.

Matti Shem Tov, the company’s recently appointed CEO, said in the Q2 earnings call that he is “confident that with some adjustment, we can build on top of what Jonathan and the leadership team has accomplished and take Clarivate to the next level.” 

With continued revenue growth and more disciplined spending don’t be surprised to see a significant surge in $CLVT prices in the coming months.