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HashiCorp (NASDAQ:HCP) Surprises With Q4 Sales But Full-Year Guidance Underwhelms


Full Report / March 05, 2024

Cloud infrastructure automation platform HashiCorp beat analysts' expectations in Q4 FY2024, with revenue up 14.7% year on year to $155.8 million. The company expects next quarter's revenue to be around $153 million, in line with analysts' estimates. It made a non-GAAP profit of $0.05 per share, improving from its loss of $0.07 per share in the same quarter last year.

HashiCorp (HCP) Q4 FY2024 Highlights:

  • Revenue: $155.8 million vs analyst estimates of $149.3 million (4.3% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of $0.01 ($0.04 beat)
  • Revenue Guidance for Q1 2025 is $153 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for the upcoming financial year 2025 is $645 million at the midpoint, missing analyst estimates by 1.6% and implying 10.6% growth (vs 23.5% in FY2024)
  • Free Cash Flow of $7.28 million, up 27.4% from the previous quarter
  • Net Revenue Retention Rate: 115%, down from 119% in the previous quarter
  • Customers: 4,423, up from 4,354 in the previous quarter
  • Gross Margin (GAAP): 82.7%, in line with the same quarter last year
  • Market Capitalization: $4.98 billion

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.

Deploying software across multiple cloud platforms creates a lot of complex and time-consuming issues that slow down innovative companies.

For example, if a company operates on three different public clouds they will have slightly different infrastructure, security, and processes in each one. This can make organisations so complex that they become very slow to roll out updates or onboard new developers. Organisations must devote a large amount of resources to managing their infrastructure instead of focusing on improving their products. HashiCorp helps companies refocus on their products by providing a consistent cloud foundation.

HashiCorp works through standardising application developments, automating processes to accelerate application delivery, and eliminating duplicate work with manual processes. HashiCorp integrates with over 2,000 core services which means that companies can use HashiCorp for their entire ecosystem. Within the HashiCorp Cloud Platform are the flagship products Terraform, Vault, and Consul. Terraform provides the cloud foundation, Vault helps keep your data secure, and Consul consolidates your private and public cloud providers.

Developer Operations

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.

Other providers of tools to make software development more efficient include GitLab (NASDAQ:GTLB), JFrog (NASDAQ:FROG), Agora (NASDAQ:API), Akamai (NASDAQ: AKAM).

Sales Growth

As you can see below, HashiCorp's revenue growth has been very strong over the last two years, growing from $96.52 million in Q4 FY2022 to $155.8 million this quarter.

HashiCorp Total Revenue

This quarter, HashiCorp's quarterly revenue was once again up 14.7% year on year. We can see that HashiCorp's revenue increased by $9.66 million quarter on quarter, which is a solid improvement from the $2.88 million increase in Q3 2024. Shareholders should applaud the acceleration of growth.

Next quarter's guidance suggests that HashiCorp is expecting revenue to grow 10.9% year on year to $153 million, slowing down from the 36.8% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $645 million at the midpoint, growing 10.6% year on year compared to the 22.5% increase in FY2024.

Customer Growth

HashiCorp reported 4,423 customers at the end of the quarter, an increase of 69 from the previous quarter. , suggesting that the company's customer acquisition momentum is slowing.

HashiCorp Customers

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

HashiCorp Net Revenue Retention Rate

HashiCorp's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 115% in Q4. This means that even if HashiCorp didn't win any new customers over the last 12 months, it would've grown its revenue by 15%.

Despite falling over the last year, HashiCorp still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

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. HashiCorp's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 82.7% in Q4.

HashiCorp Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, sales and marketing, and general administrative overhead. HashiCorp's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that HashiCorp is controlling its costs and not under pressure from its competitors to lower prices.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. HashiCorp's free cash flow came in at $7.28 million in Q4, turning positive over the last year.

HashiCorp Free Cash Flow

HashiCorp has burned through $22.88 million of cash over the last 12 months, resulting in a negative 3.9% free cash flow margin. This low FCF margin stems from HashiCorp's constant need to reinvest in its business to stay competitive.

Key Takeaways from HashiCorp's Q4 Results

It was great to see HashiCorp beat Wall Street's revenue and EPS estimates this quarter, driven by an increase in its customer base. On the other hand, its net revenue retention rate of 115% fell short of analysts' 119% forecast. Its full-year revenue guidance also came in below expectations, suggesting a slowdown in demand. With the results, HashiCorp announced a share repurchase program for up to $250 million of the company's common stock. Overall, this was a mediocre quarter for HashiCorp. The company is down 3.9% and currently trades at $23.02 per share. 

Is Now The Time?

When considering an investment in HashiCorp, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although we have other favorites, we understand the arguments that HashiCorp isn't a bad business. We'd expect growth rates to moderate from here, but its revenue growth has been solid. And while its customer acquisition is less efficient than many comparable companies, the good news is its customers are increasing their spending quite quickly, suggesting they love the product.

The market is certainly expecting long-term growth from HashiCorp given its price-to-sales ratio based on the next 12 months is 7.2x. In the end, beauty is in the eye of the beholder. While HashiCorp wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

Wall Street analysts covering the company had a one-year price target of $25.96 per share right before these results (compared to the current share price of $23.02).

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