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Couchbase (NASDAQ:BASE) Q1 Sales Beat Estimates, Stock Soars


Full Report / June 23, 2022
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Database as a service company Couchbase (NASDAQ: BASE) reported Q1 FY2023 results beating Wall St's expectations, with revenue up 24.6% year on year to $34.8 million. Guidance for next quarter's revenue was $35.9 million at the midpoint, which is 1.75% above the analyst consensus. Couchbase made a GAAP loss of $19.8 million, down on its loss of $14.5 million, in the same quarter last year.

Couchbase (BASE) Q1 FY2023 Highlights:

  • Revenue: $34.8 million vs analyst estimates of $32.6 million (6.83% beat)
  • EPS (non-GAAP): -$0.32 vs analyst estimates of -$0.39
  • Revenue guidance for Q2 2023 is $35.9 million at the midpoint, above analyst estimates of $35.2 million
  • The company reconfirmed revenue guidance for the full year, at $147.7 million at the midpoint
  • Free cash flow was negative $9.4 million, compared to negative free cash flow of $2.65 million in previous quarter
  • Gross Margin (GAAP): 86.6%, down from 87.8% 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 year, growing from quarterly revenue of $27.9 million, to $34.8 million.

Couchbase Total Revenue

This quarter, Couchbase's quarterly revenue was once again up a very solid 24.6% year on year. But the revenue actually decreased by $211 thousand in Q1, compared to $4.24 million increase in Q4 2022. However, Couchbase's sales do seem to have a seasonal pattern to them, and since management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.

Guidance for the next quarter indicates Couchbase is expecting revenue to grow 20.8% year on year to $35.9 million, improving on the 18% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 18.5% 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, licenses, technical support and other necessary running expenses was at 86.6% in Q1.

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 the recent drop that 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.

Key Takeaways from Couchbase's Q1 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 $622.5 million and more than $201 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 next quarter exceeded analysts' expectations. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $16 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 think Couchbase is a solid business. Its revenue growth has been solid. And while its growth is coming at a cost of significant cash burn, the good news is its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Couchbase's price to sales ratio based on the next twelve months is 4.1x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Couchbase and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $24.9 per share right before these results, implying that they saw upside in buying Couchbase even in the short term.

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