WalkMe's (NASDAQ:WKME) Q4 Earnings Results: Revenue In Line With Expectations But Full-Year Guidance Underwhelms

Full Report / February 21, 2024

User support software provider WalkMe (NASDAQ: WKME) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 4.7% year on year to $67.89 million. On the other hand, next quarter's revenue guidance of $68.1 million was less impressive, coming in 1.4% below analysts' estimates. It made a non-GAAP profit of $0.07 per share, improving from its loss of $0.11 per share in the same quarter last year.

WalkMe (WKME) Q4 FY2023 Highlights:

  • Revenue: $67.89 million vs analyst estimates of $67.59 million (small beat)
  • EPS (non-GAAP): $0.07 vs analyst estimates of $0.03 ($0.04 beat)
  • Revenue Guidance for Q1 2024 is $68.1 million at the midpoint, below analyst estimates of $69.07 million
  • Management's revenue guidance for the upcoming financial year 2024 is $281 million at the midpoint, missing analyst estimates by 1.9% and implying 5.3% growth (vs 9.2% in FY2023)
  • Free Cash Flow of $8.36 million, up 34% from the previous quarter
  • Gross Margin (GAAP): 85.3%, up from 80.8% in the same quarter last year
  • Market Capitalization: $896.6 million

Founded in Israel in 2011, WalkMe (NASDAQ:WKME) is software that teaches users how to get the most out of new applications.

WalkMe allows businesses to get more out of their technology investments through elearning. Its Digital Adoption Platform visual cues inside applications so that users can navigate around them more easily and is essentially a turn by turn GPS for learning how to use new tools or services. It also provides management insight into what tools are being used the most throughout an organization.

In many large organizations there is a constant drumbeat of new SaaS applications meant to streamline business processes or save time and money through some undefined “efficiency-savings” but yet many new apps never achieve the desired outcome because it's difficult to change user behavior. Or even if a new software program has a good user interface and good customer support, it still might be unable to explain to a user how to use the new tool with different apps.

WalkMe acts as a force multiplier for digital investments by teaching employees how to get more out of systems they already use – one example might be a salesperson who has used Salesforce for years, but never utilized all the features that could’ve improved her productivity. By making new tech easier to use in an enterprise, it can improve employee retention, and reduce support costs.

Customer Support

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 integrates data analytics with sales and marketing functions.

WalkMe competes within the automation niche within the broader business productivity tools segment characterized by providers like UiPath (NASDAQ: PATH), ServiceNow (NYSE:NOW), and Appian (NASDAQ:APPN).

Sales Growth

As you can see below, WalkMe's revenue growth has been mediocre over the last two years, growing from $53.26 million in Q4 FY2021 to $67.89 million this quarter.

WalkMe Total Revenue

WalkMe's quarterly revenue was only up 4.7% year on year, which might disappoint some shareholders. We can see that revenue increased by $874,000 in Q4, which was roughly the same as in Q3 2023.

Next quarter's guidance suggests that WalkMe is expecting revenue to grow 3.4% year on year to $68.1 million, slowing down from the 15.9% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $281 million at the midpoint, growing 5.3% year on year compared to the 9% increase in FY2023.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 85.3% in Q4.

WalkMe Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, WalkMe'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.

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. WalkMe's free cash flow came in at $8.36 million in Q4, turning positive over the last year.

WalkMe Free Cash Flow

WalkMe has generated $11.49 million of cash over the last 12 months, resulting in a 4.3% free cash flow margin. This is poor for a SaaS business. 

Key Takeaways from WalkMe's Q4 Results

We struggled to find many strong positives in these results. Although its revenue and adjusted EPS beat this quarter, its full-year revenue guidance was below expectations, suggesting a slowdown in demand. It does, however, go into 2024 as a free cash flow positive company, a step in the right direction. Overall, this was a mediocre quarter for WalkMe. The stock is flat after reporting and currently trades at $10.16 per share.

Is Now The Time?

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

We cheer for everyone who's making the lives of others easier through technology, but in the case of WalkMe, we'll be cheering from the sidelines. Wall Street expects growth to deteriorate from here and its low free cash flow margins give it little breathing room.

WalkMe's price-to-sales ratio based on the next 12 months is 3.2x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

Wall Street analysts covering the company had a one-year price target of $13.25 per share right before these results (compared to the current share price of $10.16).

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