User support software provider WalkMe (NASDAQ: WKME) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 15.9% year on year to $65.9 million. However, guidance for the next quarter was less impressive, coming in at $65.5 million at the midpoint, being 2.29% below analyst estimates. WalkMe made a GAAP loss of $23.6 million, improving on its loss of $29.7 million, in the same quarter last year.
Is now the time to buy WalkMe? Access our full analysis of the earnings results here, it's free.
WalkMe (WKME) Q1 FY2023 Highlights:
- Revenue: $65.9 million vs analyst estimates of $65.0 million (1.31% beat)
- EPS (non-GAAP): -$0.08 vs analyst estimates of -$0.11
- Revenue guidance for Q2 2023 is $65.5 million at the midpoint, below analyst estimates of $67 million
- The company reconfirmed revenue guidance for the full year, at $272.5 million at the midpoint
- Free cash flow was negative $8.28 million, compared to negative free cash flow of $10.2 million in previous quarter
- Gross Margin (GAAP): 81.5%, up from 75.8% same quarter last year
"WalkMe delivered solid revenue growth with better than expected operating margin while also pushing innovation and a successful launch of WalkMe Discovery,” said Dan Adika, CEO of WalkMe.
Founded in Israel in 2011, WalkMe (NASDAQ:WKME) is software that teaches users how to get the most out of new applications.
Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrate data analytics with sales and marketing functions.
As you can see below, WalkMe's revenue growth has been strong over the last two years, growing from quarterly revenue of $42.7 million in Q1 FY2021, to $65.9 million.
This quarter, WalkMe's quarterly revenue was once again up 15.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.03 million in Q1, compared to $1.51 million in Q4 2022. 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 WalkMe is expecting revenue to grow 9.27% year on year to $65.5 million, slowing down from the 28.1% 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 10.5% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
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. WalkMe'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 81.5% in Q1.
That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year this is a great gross margin, that allows companies like WalkMe to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
Key Takeaways from WalkMe's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on WalkMe’s balance sheet, but we note that with a market capitalization of $764.2 million and more than $247.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.
WalkMe topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue guidance for the full year slightly missed expectations. Overall, it seems to us that this was a complicated quarter for WalkMe. The company is down 19.3% on the results and currently trades at $7 per share.
WalkMe 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.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.