Amdocs (DOX)

Telecom software provider Amdocs (NASDAQ:DOX) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales fell by 9% year on year to $1.15 billion. Guidance for next quarter’s revenue was better than expected at $1.16 billion at the midpoint, 0.6% above analysts’ estimates. Its non-GAAP profit of $1.83 per share was in line with analysts’ consensus estimates.

Company Overview

Powering the digital experiences of approximately 400 communications companies worldwide, Amdocs (NASDAQ:DOX) provides software and services that help telecommunications and media companies manage customer relationships, monetize services, and automate network operations.

The Enterprise Networking subsector is poised for growth as businesses accelerate cloud adoption, AI-driven network automation, and edge computing deployments. While these seem like big, nebulous trends, they require very real products and services like switches, firewalls, and datacenter hosting services. On the other hand, challenges on the horizon include intensifying competition from cloud-native networking providers, regulatory scrutiny over data privacy and cybersecurity, and potential supply chain constraints for networking hardware. While AI and automation will enhance network efficiency and security, they also introduce risks related to algorithmic bias, compliance complexity, and increased energy consumption.

Amdocs competes with a diverse set of companies across different segments of its business, including telecom software specialists like CSG International, Netcracker, and Optiva; enterprise software giants such as Oracle, Salesforce, and SAP; IT service providers including Accenture, Infosys, and Tata Consultancy Services; and network equipment vendors like Ericsson, Nokia, and Huawei.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $4.53 billion in revenue over the past 12 months, Amdocs is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Amdocs’s 1.7% annualized revenue growth over the last five years was sluggish. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Amdocs’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.7% annually.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Amdocs’s backlog reached $4.19 billion in the latest quarter and was flat over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Amdocs’s products and services but raises concerns about capacity constraints.

This quarter, Amdocs’s revenue fell by 9% year on year to $1.15 billion but beat Wall Street’s estimates by 0.6%. Company management is currently guiding for a 4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

Amdocs has been an efficient company over the last five years. It was one of the more profitable businesses in the business services sector, boasting an average operating margin of 14.1%.

Looking at the trend in its profitability, Amdocs’s operating margin rose by 2.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Amdocs generated an operating margin profit margin of 11.5%, up 2.6 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Amdocs’s EPS grew at a solid 9.5% compounded annual growth rate over the last five years, higher than its 1.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Amdocs’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Amdocs’s operating margin expanded by 2.2 percentage points over the last five years. On top of that, its share count shrank by 17.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Amdocs, its two-year annual EPS growth of 8.8% is similar to its five-year trend, implying stable earnings.

In Q3, Amdocs reported adjusted EPS of $1.83, up from $1.70 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Amdocs’s full-year EPS of $6.99 to grow 9.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Amdocs has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 13.8% over the last five years.

Taking a step back, we can see that Amdocs’s margin dropped by 2.4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Amdocs’s free cash flow clocked in at $198.6 million in Q3, equivalent to a 17.3% margin. This result was good as its margin was 2.1 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Amdocs historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.8%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Amdocs’s ROIC averaged 1.4 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Amdocs reported $325 million of cash and $826.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.10 billion of EBITDA over the last 12 months, we view Amdocs’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $29.88 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Amdocs narrowly top analysts’ backlog expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Overall, this was a softer quarter. The stock remained flat at $83.99 immediately after reporting.

Updated: December 3, 2025 at 10:55 PM EST

Before making an investment decision, investors should account for Amdocs’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies making their customers lives easier, but in the case of Amdocs, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its flat backlog disappointed. On top of that, its cash profitability fell over the last five years.

Amdocs’s P/E ratio based on the next 12 months is 10.1x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $102.50 on the company (compared to the current share price of $76.22).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.