An artificial intelligence (AI) tool that can write a beautiful answer for you will still need to know which company document it’s allowed to read. Otherwise, it could confidently serve up last year’s policy, confidential customer information, or something nobody approved. Getting that part right is becoming a business opportunity. For investors, the challenge is finding a company that can turn all that administrative housekeeping into growing profits. And one offers just that.
But after earnings, is it still a solid buy?
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The paperwork has potential
Businesses don’t keep their information in one tidy folder. Contracts, invoices, employee records, and customer files sit across different systems. Before AI can reliably work with that information, someone needs to organize it, protect it, and preserve the permissions attached to it.
That’s an opening for OpenText (TSX: OTEX), which sells software that manages business information and workflows. Its opportunity comes from helping customers put information they already own to work. That could make it relevant long after today’s favourite AI application gets replaced.
In the November 5 earnings release, CEO Ayman Antoun said customers need “trusted context and connected data.” The investment case rests on getting paid to provide that foundation. A convincing product demonstration starts the conversation. Renewals, additional spending, and cash generation have to finish it.
Look beneath the decline
OpenText’s fiscal first-quarter revenue fell 4%. That deserves attention. A company selling tools for a growing technology opportunity still needs to overcome businesses moving in the other direction.
Its core cloud revenue grew 11.2%, however. These are cloud sales within the product categories management considers central to its strategy. For shareholders, that suggests customers are buying more of some services OpenText wants to build around, even while the overall business contracts.
The presentation also says approximately US$116 million of quarterly revenue was reclassified from core to non-core. That’s a change in how management groups products. I’d therefore judge the recovery using consistent comparisons and the whole company’s progress, rather than let an increasingly attractive label do the selling.
Make AI earn its place
I’d want AI to help OpenText sell more to existing customers, retain their business, or deliver services more profitably. Those outcomes give shareholders something concrete. Adding an AI feature that customers expect for free could improve the product without producing much additional profit.
My preference is for customer spending that expands because the software solves a costly problem. Replacing manual document searches or improving a regulated workflow can justify an ongoing subscription. The harder part is keeping that business while competitors offer their own tools.
That makes OpenText a recovery investment with an AI opportunity attached. I’d consider a modest position within a Canadian stock portfolio, rather than buying it as though participation in AI guarantees growth.
Cash gives it time
OpenText generated US$139 million in quarterly free cash flow, its measure of cash remaining after capital spending. That money gives management resources for debt reduction, dividends, and investment while it works on the growth problem.
The declared quarterly dividend remains US$0.28 per share. Canadian shareholders receive a converted amount that changes with exchange rates. I’d treat that payment as one part of the return among Canadian dividend stocks, with improving customer demand doing the heavier work in the long-term case.
Management plans to present the outcome of its enterprise assessment at its February investor day. That could clarify which products receive investment and how the portfolio changes. I’d become more interested as growth in the chosen businesses translates into stronger results across the company.
Bottom line
I’d consider OpenText a small, patient recovery holding. Its place in business information gives it an opening as companies adopt AI, while cash generation buys time to execute. Growing customer spending across a more focused business would give me a stronger reason to add than another impressive demonstration.
