Could EngageXR be a good option for investors in 2025?

EngageXR [LON:EXR] the AIM-listed, Ireland-based software and virtual reality and communications company, published a trading update earlier this week (6th January).

The developer said it will be releasing its full-year results to end-December in May, and is expecting revenues of EUR3.4m (GBP2.8m), down EUR300,000 year-on-year.

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The company’s management said that the lower-than-expected revenue performance was a result of some of its Middle East-based clients taking longer than anticipated to finalise contracts that it had agreed, as well as delays in the deployment of a previously announced contract with an existing Middle East client.

Strength of EngageXR pipeline

Dave Whelan, CEO said: “While it is disappointing that the delay in our new Middle East contract hit revenue recognisable in 2024, given the strength of the pipeline, we expect 2025 to be a strong year and remain confident in delivering our strategic objective of cashflow break even in FY25.”

The company’s shares have trended downwards in 2024, starting the year at 2.25p and falling to 0.6p at the start of the week. This fell to 0.5p after the company released its trading update, some 77% behind where its shares were trading hands at the start of last year.

However, the nature of EngageXR’s revenues has changed over the last year, with recurring revenues amounting to 70% of total revenues, up from 63% y-o-y. Losses will be no more than last year, at EUR4m, which is in line with market expectations, and Whelan said the company had been reviewing its operations and spending to identify new efficiencies. The company has also been eating into its cash reserves with cash-on-hand falling from EUR7.9m to EUR3.6m y-o-y.

Late contract payments to provide EXR with 2025 boost

Although the report disappointed investors and management alike, Whelan said that longer-term the company is feeling confident. Although its Middle East contracts have been slow to pay out – the principal reason for its disappointing performance – the company stresses that the tardy seven-figure education and training contract was secured through global accounting and services company PwC, and has been finalised and ready to deploy in the first-half of the year, which should see the contract balance of EUR400,000 eventually make its way into EngageXR’s bank account before summer, giving FY25’s number a welcome boost.

Other Middle East contracts, expected to close in 2024, are now expected to close in 1Q25, which should again improve the aspect of the first quarter of the new financial year. If the aforesaid contract had been secured when the client originally agreed, EngageXR would have comfortably hit its revenue target for 2024. As it stands, the contract being shunted into a new financial year means that EngageXR has secured a head start on the upcoming year’s revenue targets.

‘Once burned, twice shy’ does not seem to be an adage that EngageXR’s management seem to take to seriously, as the company expects further business to come from the region in the next year in education and training. However, management is also expecting improved revenues from the US and should become cashflow break-even this year.

An evolving customer base

The type of business EngageXR is developing has evolved over the last few years. During the Covid-19 pandemic, the company found that demand for its remote collaboration solutions and one-off events was high. Since the end of lockdown, demand for these type of services has tailed-off to be replaced by VR training and education, which the company said is a positive development, as it can predict revenues a lot more accurately from education and training clients, especially in financial services.

Although in the technology sector Artificial Intelligence (AI) has been grabbing most of the headlines over the last twelve-to-eighteen months, virtual and augmented reality (VR and AR) has also seen significant advances, with the large, global technology companies committing significant resource to the development of hardware, and key advances have been seen in the healthcare and other industry-specific uses.

Both AR and VR have increasingly found more practical uses (away from the leisure and entertainment sectors) and the industry, worth around USD30bn in 2022, is expected to rise to more than USD520bn in the next half-decade, according to tech consultancy and market intel firm, Skyquest.

Real-life applications driving demand

The biggest advances have been in education and training, with applications for immersive learning and integration to AI systems being the largest growing sub-sectors of the AI/VR industry. Another area where AI/VR applications are being trialled is in retail, for example allowing customers to see how clothes will fit their bodies before committing to a purchase.

Engineering, especially in the manufacture of prototype designs, or in maintaining and operating equipment in hazardous or inaccessible environments, is also increasingly taking to AR/VR, with the space travel and exploration industry adopting the technology to pilot, operate and maintain out-of-orbit equipment.

Analysts predict that by the end of the 2020s AR/VR will be a part of everyday life for most of the developed world’s population, with real-time interaction in business and leisure being increasingly conducted virtually and in 3D. If you agree with this synopsis, then gaining access to the industry with a leading proponent, at a historically low price (pre-pandemic EngageXR shares were trading at just shy of 19p) might be a wise early buy in 2025.

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