HashiCorp (NASDAQ:HCP) Reports Upbeat Q3, Stock Jumps 13.5%

Jabin Bastian /
2022/12/07 4:12 pm EST

Cloud infrastructure automation platform HashiCorp reported Q3 FY2023 results topping analyst expectations, with revenue up 52.4% year on year to $125.3 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $124 million at the midpoint, 3.36% above what analysts were expecting. HashiCorp made a GAAP loss of $71.9 million, down on its loss of $21.9 million, in the same quarter last year.

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HashiCorp (HCP) Q3 FY2023 Highlights:

  • Revenue: $125.3 million vs analyst estimates of $111.1 million (12.7% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.31 ($0.18 beat)
  • Revenue guidance for Q4 2023 is $124 million at the midpoint, above analyst estimates of $119.9 million
  • Free cash flow was negative $17.8 million, compared to negative free cash flow of $59.1 million in previous quarter
  • Net Revenue Retention Rate: 134%, in line with previous quarter
  • Customers: 3,899, up from 3,612 in previous quarter
  • Gross Margin (GAAP): 82%, down from 86.4% same quarter last year

“As organizations move to the cloud, they are standardizing on our products, which provide a consistent operating model across their infrastructure stack. Our third quarter results highlight how our products are a strategic investment for the Global 2000 as they make that transition,” 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 $55.2 million in Q3 FY2021, to $125.3 million.

HashiCorp Total Revenue

This was another standout quarter with the revenue up a splendid 52.4% year on year. But the growth did slow down a little compared to last quarter, as HashiCorp increased revenue by $11.4 million in Q3, compared to $12.9 million revenue add in Q2 2023. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Guidance for the next quarter indicates HashiCorp is expecting revenue to grow 28.4% year on year to $124 million, slowing down from the 56.1% 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 23.4% 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 134% in Q3. That means even if they didn't win any new customers, HashiCorp would have grown its revenue 34% year on year. That is 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 Q3 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 $4.74 billion and more than $1.27 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly HashiCorp outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is up 13.5% on the results and currently trades at $30.25 per share.

HashiCorp may have had a good quarter, so should you 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.