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Couchbase (NASDAQ:BASE) Surprises With Q2 Sales, Next Quarter Growth Looks Optimistic


Full Report / October 29, 2021
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Database as a service company Couchbase (NASDAQ: BASE) reported Q2 FY2022 results that beat analyst expectations, with revenue up 18% year on year to $29.6 million. Guidance also exceeded expectations with next quarter revenues guided to $29.4 million, or 1.03% above analyst estimates. Couchbase made a GAAP loss of $14.4 million, down on its loss of $8.83 million, in the same quarter last year.

CouchBase (BASE) Q2 FY2022 Highlights:

  • Revenue: $29.6 million vs analyst estimates of $28.2 million (5.29% beat)
  • EPS (non-GAAP): -$1.54 vs analyst expectations of -$1.08 (-42.5% miss)
  • Revenue guidance for Q3 2022 is $29.4 million at the midpoint, above analyst estimates of $29 million
  • Gross Margin (GAAP): 88.1%, down from 89.3% 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.

Couchbase benefits from long term secular data growth trends, notably non-traditional data generated by mobile devices and the cloud that doesn’t readily translate to traditional relational database analysis. Couchbase stands to benefit as enterprises accelerate their digital transformations, as the overall database market remains in relatively early stages of cloud adoption, with IDC estimating nearly 70% of spend remaining on-prem in 2020.

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 year, growing from quarterly revenue of $25.1 million, to $29.6 million.

CouchBase Total Revenue

This quarter, Couchbase's quarterly revenue was once again up 18% year on year. On top of that, revenue increased $1.74 million quarter on quarter, a strong improvement on the $1.44 million decrease in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 15.9% over the next twelve months.

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 is left after paying for servers, licences, technical support and other necessary running expenses was at 88.1% in Q2.

CouchBase Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.88 left to spend on developing new products, marketing & sales and the general administrative overhead. This is 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. It is good to see that the gross margin is staying stable which indicates that CouchBase is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from CouchBase's Q2 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 $1.52 billion and more than $253.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We liked to see that Couchbase beat analysts’ revenue expectations pretty strongly this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $37.8 per share.

Is Now The Time?

When considering Couchbase, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Couchbase we will be cheering from the sidelines. Its revenue growth has been solid. But while its impressive gross margins are indicative of excellent business economics, the downside is that its growth is coming at a cost of significant cash burn and its customer acquisition costs are higher than we like to see.

Couchbase's price to sales ratio based on the next twelve months is 12.6, 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, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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