Paycom Earnings: Firm Retreats on Flagship Beti Amid Conversion and Revenue Cannibalization Woes

Narrow-moat Paycom reported a mixed fourth quarter and full-year fiscal 2024 result, which met our top-line and profitability expectations. However, amid a strategic reset including a deemphasis on flagship self-service payroll solution Beti, we have lowered our long-term profitability assumptions and our fair value estimate to $260 from $295. Following difficulty converting remaining clients to Beti, nonrecurring service revenue cannibalization headwinds and deteriorating revenue retention, we expect Paycom to ramp up product innovation and sales investment to expand the suite of automation solutions and reaccelerate topline growth. This shift in focus comes alongside an announced leadership change, with Chief Operating Officer Chris Thomas commencing as Co-CEO alongside Paycom founder Chad Richison.