WalkMe (NASDAQ:WKME) Exceeds Q4 Expectations But Guidance Underwhelms

Full Report / February 15, 2023
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User support software provider WalkMe (NASDAQ: WKME) reported Q4 FY2022 results topping analyst expectations, with revenue up 21.8% year on year to $64.9 million. However, guidance for the next quarter was less impressive, coming in at $65.1 million at the midpoint, being 3.13% below analyst estimates. WalkMe made a GAAP loss of $21.3 million, improving on its loss of $29.5 million, in the same quarter last year.

WalkMe (WKME) Q4 FY2022 Highlights:

  • Revenue: $64.9 million vs analyst estimates of $64 million (1.34% beat)
  • EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.14
  • Revenue guidance for Q1 2023 is $65.1 million at the midpoint, below analyst estimates of $67.2 million
  • Management's revenue guidance for upcoming financial year 2023 is $272.5 million at the midpoint, missing analyst estimates by 5.6% and predicting 11.2% growth (vs 27.1% in FY2022)
  • Free cash flow was negative $10.2 million, compared to negative free cash flow of $11.2 million in previous quarter
  • Gross Margin (GAAP): 80.8%, up from 75.6% same quarter last year

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.

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.

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 strong over the last two years, growing from quarterly revenue of $38.9 million in Q4 FY2020, to $64.9 million.

WalkMe Total Revenue

This quarter, WalkMe's quarterly revenue was once again up a very solid 21.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.51 million in Q4, compared to $3.41 million in Q3 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 14.5% year on year to $65.1 million, slowing down from the 33.3% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $272.5 million at the midpoint, growing 11.2% compared to 26.7% increase in FY2022.


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 80.8% in Q4.

WalkMe Gross Margin (GAAP)

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. Significantly up from the last quarter, 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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. WalkMe burned through $10.2 million in Q4.

WalkMe Free Cash Flow

WalkMe has burned through $53.9 million in cash over the last twelve months, a negative 22% free cash flow margin. This low FCF margin is a result of WalkMe's need to still heavily invest in the business.

Key Takeaways from WalkMe's Q4 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 $938 million and more than $261.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see WalkMe improve their gross margin this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that WalkMe's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from WalkMe. The company is up 4.57% in the pre-market and currently trades at $11.68 per share.

Is Now The Time?

When considering WalkMe, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of WalkMe we will be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. But while its impressive gross margins are indicative of excellent business economics, the downside is that its customer acquisition is less efficient than many comparable companies and its growth is coming at a cost of significant cash burn.

WalkMe's price to sales ratio based on the next twelve months is 3.3x, 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, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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