HashiCorp (NASDAQ:HCP) Posts Better-Than-Expected Sales In Q1 But Stock Drops 26.7%

Petr Huřťák /
2023/06/07 4:13 pm EDT

Cloud infrastructure automation platform HashiCorp announced better-than-expected results in the Q1 FY2024 quarter, with revenue up 36.8% year on year to $138 million. However, guidance for the next quarter was less impressive, coming in at $138 million at the midpoint, being 2.71% below analyst estimates. HashiCorp made a GAAP loss of $53.3 million, improving on its loss of $78.2 million, in the same quarter last year.

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HashiCorp (HCP) Q1 FY2024 Highlights:

  • Revenue: $138 million vs analyst estimates of $133.1 million (3.65% beat)
  • EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.14
  • Revenue guidance for Q2 2024 is $138 million at the midpoint, below analyst estimates of $141.8 million
  • The company dropped revenue guidance for the full year, from $593 million to $567 million at the midpoint, a 4.38% decrease
  • Free cash flow of $744 thousand, up from negative free cash flow of $1.11 million in previous quarter
  • Net Revenue Retention Rate: 127%, down from 131% previous quarter
  • Customers: 4,392, up from 4,131 in previous quarter
  • Gross Margin (GAAP): 80.6%, in line with same quarter last year

“HashiCorp remains focused on its role as a partner to the Global 2000 as they transition to the cloud, and, despite the difficult macroeconomic environment, we saw meaningful progress with new customers in the first quarter,” said Dave McJannet, CEO, HashiCorp.

Initially created as a research project at the University of Washington, HashiCorp (NASDAQ:HCP) provides software that helps companies operate their own applications in a multi-cloud environment.

As Marc Andreessen says, "software is eating the world" which means the volume of software produced is exploding. But building software is complex and difficult work which drives demand for software tools that help increase the speed, quality, and security of software deployment.

Sales Growth

As you can see below, HashiCorp's revenue growth has been impressive over the last two years, growing from quarterly revenue of $66.9 million in Q1 FY2022, to $138 million.

HashiCorp Total Revenue

And unsurprisingly, this was another great quarter for HashiCorp with revenue up 36.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.2 million in Q1, compared to $10.4 million in Q4 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates HashiCorp is expecting revenue to grow 21.2% year on year to $138 million, slowing down from the 51.6% 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 22.3% over the next twelve months.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

HashiCorp Net Revenue Retention Rate

HashiCorp's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 127% in Q1. That means even if they didn't win any new customers, HashiCorp would have grown its revenue 27% year on year. Despite the recent drop this is still a great retention rate and a clear proof of a great product. We can see that HashiCorp's customers are very satisfied with their software and are using it more and more over time.

Key Takeaways from HashiCorp's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on HashiCorp’s balance sheet, but we note that with a market capitalization of $6.8 billion and more than $1.29 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see HashiCorp outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that HashiCorp's revenue guidance for the next quarter and full year missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 26.7% on the results and currently trades at $25.49 per share.

HashiCorp may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.