CS Disco's Growth Potential and Positive Outlook Justify Buy Rating

Analyst Scott Berg at Needham maintains a Buy rating on CS Disco with a price target of $8.00, citing the company's growth potential and positive outlook. CS Disco has shown an 11.7% YoY increase in software revenue, driven by a new enterprise strategy focusing on large matters, and has raised guidance for FY25 with expectations of double-digit growth in the latter quarters. Despite challenges in the services revenue segment, the anticipation of a return to double-digit growth and margin expansion by FY26 underpins the positive outlook.

CS Disco Inc. (NYSE: LAW), a legal technology company specializing in AI-powered litigation solutions, presented its Q2 FY25 investor slides on August 6, 2025, highlighting both progress and ongoing challenges in its path to profitability. The company operates in a growing market where discovery costs represent over 50% of litigation expenses, with productivity data expected to surge from 22 zettabytes in 2024 to 146 zettabytes by 2029 – a 46% compound annual growth rate [1].

Quarterly Performance Highlights

CS Disco reported total revenue of $38.1 million for Q2 FY25, representing a 6% year-over-year growth, with software revenue increasing 12% to $32.7 million. However, this fell short of analyst expectations of $37.58 million, resulting in a 12.99% revenue miss despite the positive growth trajectory. The company maintained a healthy non-GAAP gross margin of 76% while improving its adjusted EBITDA margin to -7%, compared to -13% in the same period last year [1].

Strategic Initiatives and AI Focus

The company’s strategic focus centers on its AI-powered litigation technology platform, which aims to streamline the discovery process that accounts for more than half of litigation costs. DISCO’s presentation emphasized how its solutions address the growing pressures faced by law firms, including increasing data volumes and client demands for faster results at lower costs [1].

A key competitive differentiator for CS Disco is its AI technology, branded as Cecilia AI, which the company claims can review up to 32,000 documents per hour – equivalent to a 20-person team working for three months. The platform also enables lawyers to ask complex questions and receive answers with document citations in under five seconds [1].

Financial Trajectory and Path to Profitability

CS Disco has made significant progress in improving its financial trajectory, with adjusted EBITDA loss narrowing from $7.4 million (22% of revenue) in Q2 FY23 to $2.7 million (7% of revenue) in Q2 FY25. This improvement has been driven by disciplined expense management, with non-GAAP operating expenses decreasing from 99% of revenue in Q2 FY23 to 86% in Q2 FY25 [1].

Market Reaction

Following the earnings release, CS Disco’s stock experienced a modest increase of 0.49%, closing at $4.13 in aftermarket trading. The stock remains within its 52-week range of $3.31 to $6.64, reflecting a cautious investor response to the mixed results [1, 3].

Analyst Outlook

Analyst Scott Berg at Needham maintains a Buy rating on CS Disco with a price target of $8.00, citing the company's growth potential and positive outlook. CS Disco has shown an 11.7% YoY increase in software revenue, driven by a new enterprise strategy focusing on large matters, and has raised guidance for FY25 with expectations of double-digit growth in the latter quarters. Despite challenges in the services revenue segment, the anticipation of a return to double-digit growth and margin expansion by FY26 underpins the positive outlook [2].

References:

[1] https://www.investing.com/news/company-news/cs-disco-q2-2025-slides-reveal-improving-margins-amid-aipowered-litigation-strategy-93CH-4175435
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L8N3TW2TA:0-cs-disco-inc-expected-to-post-a-loss-of-7-cents-a-share-earnings-preview/
[3] https://www.investing.com/news/transcripts/earnings-call-transcript-cs-disco-q2-2025-reveals-narrower-eps-loss-93CH-4175254