Appian (NASDAQ:APPN) Beats Q3 Sales Targets But Stock Drops

Adam Hejl /
2023/11/02 4:08 pm EDT

Low code software development platform provider Appian (Nasdaq: APPN) reported Q3 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 16.3% year on year to $137.1 million. However, next quarter's revenue guidance of $140.5 million was less impressive, coming in 1.52% below analysts' estimates. Turning to EPS, Appian made a non-GAAP loss of $0.20 per share, improving from its loss of $0.43 per share in the same quarter last year.

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Appian (APPN) Q3 FY2023 Highlights:

  • Revenue: $137.1 million vs analyst estimates of $135.3 million (1.31% beat)
  • EPS (non-GAAP): -$0.20 vs analyst estimates of -$0.25
  • Revenue Guidance for Q4 2023 is $140.5 million at the midpoint, below analyst estimates of $142.7 million
  • Free Cash Flow was -$65.5 million compared to -$15.3 million in the previous quarter
  • Net Revenue Retention Rate: 117%, in line with the previous quarter
  • Gross Margin (GAAP): 73.7%, up from 71.4% in the same quarter last year

“Our private data-centric approach to AI is getting strong support from buyers,” said Matt Calkins, CEO & Founder.

Founded by Matt Calkins and his three friends out of an apartment in Northern Virginia, Appian (NASDAQ:APPN) sells a software platform that lets its users build applications without using much code, allowing them to create new software more quickly.

Automation Software

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Sales Growth

As you can see below, Appian's revenue growth has been strong over the last two years, growing from $92.4 million in Q3 FY2021 to $137.1 million this quarter.

Appian Total Revenue

This quarter, Appian's quarterly revenue was once again up 16.3% year on year. On top of that, its revenue increased $9.38 million quarter on quarter, a strong improvement from the $7.52 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Appian is expecting revenue to grow 11.7% year on year to $140.5 million, slowing down from the 19.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14.3% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Appian Net Revenue Retention Rate

Appian's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 117% in Q3. This means that even if Appian didn't win any new customers over the last 12 months, it would've grown its revenue by 17%.

Significantly up from the last quarter, Appian has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

Key Takeaways from Appian's Q3 Results

Although Appian, which has a market capitalization of $2.86 billion, has been burning cash over the last 12 months, its more than $169.5 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

Revenue and adjusted EPS both beat, and we enjoyed seeing Appian materially improve its gross margin this quarter. We were also glad its net revenue retention grew. On the other hand, its revenue and adjusted EBITDA guidance for next quarter underwhelmed and its full-year revenue guidance slightly missed Wall Street's estimates as well. This is driving weakness in the stock. Overall, this was a mediocre quarter for Appian. The company is down 6.43% on the results and currently trades at $39 per share.

Appian may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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The author has no position in any of the stocks mentioned in this report.