Qualtrics (NASDAQ:XM) Surprises With Q3 Sales, Stock Jumps 10.1%

Jack Winthrop /
2022/10/24 4:11 pm EDT

Online survey software provider Qualtrics (NASDAQ:XM) reported Q3 FY2022 results that beat analyst expectations, with revenue up 38.9% year on year to $377.5 million. Guidance for next quarter's revenue was $381 million at the midpoint, 2.07% above the average of analyst estimates. Qualtrics made a GAAP loss of $233.5 million, improving on its loss of $286 million, in the same quarter last year.

Is now the time to buy Qualtrics? Access our full analysis of the earnings results here, it's free.

Qualtrics (XM) Q3 FY2022 Highlights:

  • Revenue: $377.5 million vs analyst estimates of $358.6 million (5.25% beat)
  • EPS (non-GAAP): $0.04 vs analyst estimates of -$0.02 ($0.06 beat)
  • Revenue guidance for Q4 2022 is $381 million at the midpoint, above analyst estimates of $373.2 million
  • Free cash flow was negative $39 million, compared to negative free cash flow of $13.1 million in previous quarter
  • Gross Margin (GAAP): 70.4%, down from 75.3% same quarter last year

“Q3 was another strong quarter for Qualtrics with 39% revenue growth and continued operating margin improvement,” 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 very strong over the last two years, growing from quarterly revenue of $192.8 million in Q3 FY2020, to $377.5 million.

Qualtrics Total Revenue

And unsurprisingly, this was another great quarter for Qualtrics with revenue up 38.9% year on year. Quarter on quarter the revenue increased by $21.1 million in Q3, which was in line with Q2 2022. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Qualtrics is expecting revenue to grow 20.5% year on year to $381 million, slowing down from the 47.9% 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 16.2% 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 70.4% in Q3.

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 Q3 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 $6.19 billion and more than $731.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Qualtrics’s impressive revenue growth this quarter. And we were also excited to see that guidance outperformed Wall St’s expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 10.1% on the results and currently trades at $11.54 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.