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Why BlackLine Stock Was Sliding Today

Source The Motley Fool

Key Points

For him, it's a sell these days.
He believes fears of AI disruption are well-founded.
10 stocks we like better than BlackLine ›

BlackLine (NASDAQ: BL) didn't have the best start to the new trading week, at least as far as its stock was concerned. Shares of the accounting software developer fell by more than 5% on Monday, due in no small measure to an analyst's downgrade.

From neutral to bearish

The pundit responsible for that move was DA Davidson's Lucky Schreiner. For him, BlackLine is now an underperform (read: sell), where previously he rated it neutral. His current price target is $23 per share.

Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

Person looking at laptop screen with head in hands.

Image source: Getty Images.

Schreiner's reasoning for the downgrade centers around potential disruption, according to reports. He wrote that developers of advanced artificial intelligence (AI) models can build effective, custom software solutions that drain business from legacy vendors like BlackLine.

The analyst added that the company has seen customers opt to build their own solutions rather than buy third-party products. That leaves BlackLine vulnerable, especially as its products are priced at premium levels.

The advantages of legacy software

Although AI is developing quickly, many models are still prone to errors from time to time, and users of third-party software solutions are often "sticky" customers. I don't think BlackLine faces as serious a threat as Schreiner believes, though it might do well to reconsider its pricing model.

Erratic profitability is a concern with this company, so while I'm not convinced its stock is a sell, I wouldn't be rushing to buy it, either.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends BlackLine. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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