User support software provider WalkMe (NASDAQ: WKME) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 28% year on year to $59.9 million. However, guidance for the next quarter was less impressive, coming in at $63 million at the midpoint, being 4.32% below analyst estimates. WalkMe made a GAAP loss of $27.8 million, down on its loss of $18.6 million, in the same quarter last year.
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WalkMe (WKME) Q2 FY2022 Highlights:
- Revenue: $59.9 million vs analyst estimates of $59.5 million (small beat)
- EPS (non-GAAP): -$0.19 vs analyst estimates of -$0.23
- Revenue guidance for Q3 2022 is $63 million at the midpoint, below analyst estimates of $65.8 million
- The company dropped revenue guidance for the full year, from $253 million to $247.5 million at the midpoint, a 2.17% decrease
- Free cash flow was negative $12.2 million, compared to negative free cash flow of $20.3 million in previous quarter
- Gross Margin (GAAP): 76.4%, in line with same quarter last year
“Driving digital adoption of business workflows has never been more important for organizations across the globe in order to stay competitive and drive higher ROI in a challenging environment," 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 very strong over the last year, growing from quarterly revenue of $46.8 million, to $59.9 million.
This quarter, WalkMe's quarterly revenue was once again up a very solid 28% year on year. But the growth did slow down a little compared to last quarter, as WalkMe increased revenue by $3.09 million in Q2, compared to $3.59 million revenue add in Q1 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 24.5% year on year to $63 million, slowing down from the 30.7% 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 29.4% 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 76.4% in Q2.
That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good 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. It is good to see that the gross margin is staying stable which indicates that WalkMe is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from WalkMe's Q2 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 $949 million and more than $317.9 million in cash, the company has the capacity to continue to prioritise growth over profitability.
It was good to see WalkMe deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that WalkMe's revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results were not the best we've seen from WalkMe. The company is down 1.95% on the results and currently trades at $11.01 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.