Couchbase (NASDAQ:BASE) Q4 Sales Beat Estimates But Full Year Guidance Underwhelms

Full Report / March 07, 2023
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Database as a service company Couchbase (NASDAQ: BASE) reported Q4 FY2023 results topping analyst expectations, with revenue up 18.7% year on year to $41.6 million. The company expects that next quarter's revenue would be around $39.8 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Couchbase made a GAAP loss of $16.6 million, down on its loss of $13.2 million, in the same quarter last year.

Couchbase (BASE) Q4 FY2023 Highlights:

  • Revenue: $41.6 million vs analyst estimates of $38.2 million (8.87% beat)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.34
  • Revenue guidance for Q1 2024 is $39.8 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2024 is $173.2 million at the midpoint, missing analyst estimates by 1.1% and predicting 11.9% growth (vs 25.6% in FY2023)
  • Free cash flow was negative $11.8 million, compared to negative free cash flow of $16.3 million in previous quarter
  • Gross Margin (GAAP): 85.7%, down from 88.2% same quarter last year

Formed in 2011 with the merger of Membase and CouchOne, Couchbase (NASDAQ:BASE) is a database as a service platform that allows enterprises to store large volumes of semi-structured data.

Databases have been in use for over 40 years to access and manipulate data to generate an outcome as simple as triggering an alarm to powering stock trading. SQL databases function like Excel on steroids, they keep information in columns and rows which can be queried and cross referenced using structured query language (SQL). This works well if you need to store a lot of data that has a similar structure, but it can create potential inefficiencies if the structure of the data you are storing varies a lot. The majority of databases today are still relational databases (SQL) that were designed for structured data and tens of thousands of users.

Today’s enterprises are going through digital transformations to deliver customer experiences through applications that respond in microseconds, requiring a modern database architecture that combines disparate data sources instantaneously and can be accessed by millions of users simultaneously.

Couchbase provides a “NoSQL" database as a service, which instead of Excel-like tables stores data in records called documents, which, similarly to a patient’s documents in a doctor’s office, have all the data for one entity in one folder, even though what is in the folder can vary a lot between entities. Couchbase’s NoSQL database allows developers to build applications that take advantage of the elasticity, scalability and flexibility of a NoSQL database while leveraging developer familiarity with SQL. Both NoSQL and SQL databases have their place, depending on what data is being stored and how it needs to be used.

Data is the lifeblood of the internet and software in general, and the amount of data created is growing at an accelerating pace. Likewise, the importance of storing the data in scalable and efficient formats continues to rise, especially as the diversity of the data and associated use cases expand from analyzing simple, structured data to high-scale processing of unstructured data, images, audio and video.

Couchbase faces a range of competitors including legacy, relational database providers, NoSQL database providers, and proprietary offerings from the giant public cloud platforms like Amazon’s DynamoDB (NASDAQ: AMZN), Microsoft Azure’s Cosmos DB (NASDAQ: MSFT) and Google Cloud SQL (NASDAQ: GOOGL). The primary legacy relational database vendors are Microsoft, Oracle (NYSE: ORCL), and IBM (NYSE: IBM), while MongoDB (NASDAQ: MDB) is the only publicly traded NoSQL database rival.

Sales Growth

As you can see below, Couchbase's revenue growth has been strong over the last two years, growing from quarterly revenue of $29.4 million in Q4 FY2021, to $41.6 million.

Couchbase Total Revenue

This quarter, Couchbase's quarterly revenue was once again up 18.7% year on year. On top of that, revenue increased $3.07 million quarter on quarter, a strong improvement on the $1.23 million decrease in Q3 2023, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Couchbase is expecting revenue to grow 14.2% year on year to $39.8 million, slowing down from the 24.7% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $173.2 million at the midpoint, growing 11.9% compared to 25.3% increase in FY2023.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Couchbase's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 85.7% in Q4.

Couchbase Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.86 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still a great gross margin, that allows companies like Couchbase to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Couchbase burned through $11.8 million in Q4, increasing the cash burn by 342% year on year.

Couchbase Free Cash Flow

Couchbase has burned through $46.8 million in cash over the last twelve months, a negative 30.2% free cash flow margin. This low FCF margin is a result of Couchbase's need to still heavily invest in the business.

Key Takeaways from Couchbase's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Couchbase’s balance sheet, but we note that with a market capitalization of $739.9 million and more than $168.3 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly Couchbase outperformed analysts’ revenue expectations this quarter, and the company also outperformed expectations for ARR. These features of the results really stood out as positives. On the other hand, it was unfortunate to see that Couchbase's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, it seems to us that this was a complicated quarter for Couchbase. The company is up 2.34% on the results and currently trades at $16.65 per share.

Is Now The Time?

Couchbase may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although Couchbase is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. But while its impressive gross margins are indicative of excellent business economics, unfortunately its growth is coming at a cost of significant cash burn.

Couchbase's price to sales ratio based on the next twelve months is 4.2x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. In the end, beauty is in the eye of the beholder. While Couchbase wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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