What Happened:
Shares of database as a service company Couchbase (NASDAQ: BASE) jumped 6.7% in the morning session following the earnings announcement from another prominent cloud provider, Datadog. Importantly, both Datadog and CouchBase feature consumption-based models where customers are not locked into long-term contracts but instead can scale their consumption of the products and features almost real-time. This means that during good times when demand is high, revenue can grow faster than if the company goes to market with a contract model. On the other hand though, if times are tough or if competition is increasing, customers can scale down usage and revenue will see headwinds faster than if the company goes to market with a contract model. Datadog reported third-quarter earnings that blew past Wall Street's expectations, highlighting the growing demand. It also shows that enterprise customers are not pulling back on spend due to reasons such as cost cuts or workforce reductions. Notably, Datadog recorded a significant improvement in new large contract wins, illustrating that even some of the largest corporations are still early in their cloud adoption journey.
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What is the market telling us:
Couchbase's shares are very volatile and over the last year have had 28 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was five months ago, when the company dropped 18.6% on the news that the company reported first quarter results that beat analysts' revenue and earnings per share estimates. However, RPO and cRPO growth decelerated meaningfully and gross margin deteriorated. The company continued to burn cash. In addition, revenue and operating loss guidance for the next quarter fell below Consensus. The full year revenue guidance was roughly inline. Overall, it was a weak quarter for the company, with the guidance clouding the outlook. Note that the week before the earnings release, SaaS database peer MongoDB reported very strong quarterly results with optimistic forward guidance. This dynamic further added to the disappointment around Couchbase's quarter, as the market was hopeful that the same tailwinds driving MDB's strength would also potentially help Couchbase.
Couchbase is up 19.6% since the beginning of the year, but at $16.09 per share it is still trading 27.6% below its 52-week high of $22.23 from June 2023. Investors who bought $1,000 worth of Couchbase's shares at the IPO in July 2021 would now be looking at an investment worth $533.55.
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