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Couchbase (NASDAQ:BASE) Q3 Sales Beat Estimates, Provides Optimistic Full-Year Guidance


Full Report / December 06, 2023

Database as a service company Couchbase (NASDAQ: BASE) reported Q3 FY2024 results beating Wall Street analysts' expectations, with revenue up 18.8% year on year to $45.81 million. The company expects next quarter's revenue to be around $46.5 million, in line with analysts' estimates. It made a GAAP loss of $0.34 per share, improving from its loss of $0.37 per share in the same quarter last year.

Couchbase (BASE) Q3 FY2024 Highlights:

  • Revenue: $45.81 million vs analyst estimates of $43.02 million (6.5% beat)
  • ARR: $188.7 million vs analyst estimates of $186.7 million (1.1% beat)
  • EPS (non-GAAP): -$0.08 vs analyst estimates of -$0.18 ($0.10 beat)
  • Revenue Guidance for Q4 2024 is $46.5 million at the midpoint, roughly in line with what analysts were expecting (ARR guidance was ahead)
  • Free Cash Flow was -$13.81 million compared to -$1.59 million in the previous quarter
  • Gross Margin (GAAP): 88.8%, up from 87.4% in the 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 Storage

Data is the lifeblood of the internet and software in general, and the amount of data created is accelerating. As a result, the importance of storing the data in scalable and efficient formats continues to rise, especially as its diversity and associated use cases expand from analyzing simple, structured datasets to high-scale processing of unstructured data such as 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 $30.82 million in Q3 FY2022 to $45.81 million this quarter.

Couchbase Total Revenue

This quarter, Couchbase's quarterly revenue was once again up 18.8% year on year. We can see that Couchbase's revenue increased by $2.67 million quarter on quarter, which is a solid improvement from the $2.14 million increase in Q2 2024. Shareholders should applaud the re-acceleration of growth.

Next quarter, Couchbase is guiding for a 10.5% year-on-year revenue decline to $46.5 million, a further deceleration from the 18.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.9% over the next 12 months before the earnings results announcement.

Profitability

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 88.8% in Q3.

Couchbase Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.89 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Couchbase's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Couchbase burned through $13.81 million of cash in Q3 , increasing its cash burn by 15.5% year on year.

Couchbase Free Cash Flow

Couchbase has burned through $35.62 million of cash over the last 12 months, resulting in a negative 20.7% free cash flow margin. This low FCF margin stems from Couchbase's poor unit economics or a constant need to reinvest in its business to stay competitive.

Key Takeaways from Couchbase's Q3 Results

Although Couchbase, which has a market capitalization of $962.7 million, has been burning cash over the last 12 months, its more than $156.6 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We enjoyed seeing Couchbase exceed analysts' ARR (annual recurring revenue), revenue, and non-GAAP EPS expectations this quarter. We were also glad that the company guided ARR ahead for next quarter and raised full year guidance for ARR and revenue. Overall, we think this was a really good quarter that should please shareholders. The stock is flat after reporting and currently trades at $19.93 per share.

Is Now The Time?

Couchbase may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for everyone who's making the lives of others easier through technology, but in case of Couchbase, we'll be cheering from the sidelines. Its revenue growth has been solid over the last two years, though we don't expect it to maintain that historical pace. And while its impressive gross margins indicate excellent business economics, the downside is that its customer acquisition is less efficient than many comparable companies. On top of that, its growth is coming at a cost of significant cash burn.

Couchbase's price to sales ratio based on the next 12 months is 4.9x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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