Qualtrics (NASDAQ:XM) Posts Better-Than-Expected Sales In Q2 But Stock Drops

Jabin Bastian /
2022/07/20 4:16 pm EDT

Online survey software provider Qualtrics (NASDAQ:XM) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 42.9% year on year to $356.3 million. However, guidance for the next quarter was less impressive, coming in at $359 million at the midpoint, being 0.11% below analyst estimates. Qualtrics made a GAAP loss of $279.2 million, down on its loss of $263.4 million, in the same quarter last year.

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Qualtrics (XM) Q2 FY2022 Highlights:

  • Revenue: $356.3 million vs analyst estimates of $344.8 million (3.34% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of $0 ($0.04 miss)
  • Revenue guidance for Q3 2022 is $359 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $1.42 billion at the midpoint
  • Free cash flow was negative $13.1 million, down from positive free cash flow of $9.93 million in previous quarter
  • Gross Margin (GAAP): 70.6%, down from 74% same quarter last year

“Q2 was a strong quarter of revenue growth for Qualtrics, and we are proud to deliver another quarter of positive non-GAAP operating margin as we drive toward long-term, durable growth,” said Qualtrics CEO Zig Serafin.

Founded in 2002 by Utah-based entrepreneur Ryan Smith, along with his father and brother, Qualtrics (NASDAQ:XM) provides organizations with software to collect and analyze feedback from customers and employees.

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Sales Growth

As you can see below, Qualtrics's revenue growth has been impressive over the last year, growing from quarterly revenue of $249.3 million, to $356.3 million.

Qualtrics Total Revenue

And unsurprisingly, this was another great quarter for Qualtrics with revenue up 42.9% year on year. On top of that, revenue increased $20.7 million quarter on quarter, a solid improvement on the $19.6 million increase in Q1 2022, and even a sign of slight acceleration of growth.

Guidance for the next quarter indicates Qualtrics is expecting revenue to grow 32.1% year on year to $359 million, slowing down from the 40.8% 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 23.7% over the next twelve months.

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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. Qualtrics'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 70.6% in Q2.

Qualtrics Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Qualtrics's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Qualtrics’s balance sheet, but we note that with a market capitalization of $7.36 billion and more than $786.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Qualtrics delivered this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for both the next quarter and the full year narrowly missed expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 5.24% on the results and currently trades at $13 per share.

Should you invest in Qualtrics 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.

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The author has no position in any of the stocks mentioned.