Database as a service company Couchbase (NASDAQ: BASE) announced better-than-expected results in the Q4 FY2022 quarter, with revenue up 19.2% year on year to $35 million. However, guidance for the next quarter was less impressive, coming in at $32.6 million at the midpoint, being 0.07% below analyst estimates. Couchbase made a GAAP loss of $13.2 million, down on its loss of $8.3 million, in the same quarter last year.
Couchbase (BASE) Q4 FY2022 Highlights:
- Revenue: $35 million vs analyst estimates of $33.9 million (3.13% beat)
- EPS (non-GAAP): -$0.22 vs analyst estimates of -$0.25
- Revenue guidance for Q1 2023 is $32.6 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2023 is $147 million at the midpoint, missing analyst estimates by 2.96% and predicting 18.9% growth (vs 19.6% in FY2022)
- Free cash flow was negative $2.65 million, compared to negative free cash flow of $20.3 million in previous quarter
- Gross Margin (GAAP): 88.2%, down from 89.4% 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.
As you can see below, Couchbase's revenue growth has been solid over the last year, growing from quarterly revenue of $29.4 million, to $35 million.
This quarter, Couchbase's quarterly revenue was once again up 19.2% year on year. We can see that the company increased revenue by $4.24 million quarter on quarter. That's a solid improvement on the $1.12 million increase in Q3 2022, so shareholders should appreciate the acceleration of growth.
Guidance for the next quarter indicates Couchbase is expecting revenue to grow 16.6% year on year to $32.6 million, slowing down from the 21.3% 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 $147 million at the midpoint, growing 18.9% compared to 19.6% increase in FY2022.
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 88.2% in Q4.
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 pressure from competition to lower prices.
Cash Is King
If you follow 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 $2.65 million in Q4, reducing the cash burn by 80% year on year.
Couchbase has burned through $38.9 million in cash over the last twelve months, a negative 31.5% 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 $761.1 million and more than $205.9 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We enjoyed the optimistic revenue guidance Couchbase provided for the next year. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that Couchbase's revenue guidance for the full year miss analyst's expectations . Overall, this quarter's results could have been better. The company is down 16.3% on the results and currently trades at $15.55 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 a little slower, but at least that growth rate is expected to increase in the short term. But on a positive note, 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 efficient customer acquisition is better than many similar companies.
Couchbase's price to sales ratio based on the next twelve months is 5.3x, 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 $47.9 per share right before these results, implying that they saw upside in buying Couchbase even in the short term.
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