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Qualtrics (NASDAQ:XM) Surprises With Strong Q3, Stock Soars


Kayode Omotosho /
2021/10/20 4:22 pm EDT
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Online survey software provider Qualtrics (NASDAQ:XM) reported Q3 FY2021 results topping analyst expectations, with revenue up 40.8% year on year to $271.6 million. Guidance also came in very strong with next quarter revenues guided to $297 million, or 12.5% above analyst estimates. Qualtrics made a GAAP loss of $286 million, down on its loss of $85.6 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 FY2021 Highlights:

  • Revenue: $271.6 million vs analyst estimates of $258.1 million (5.21% beat)
  • EPS (non-GAAP): $0.01 vs analyst estimates of -$0.02 ($0.03 beat)
  • Revenue guidance for Q4 2021 is $297 million at the midpoint, above analyst estimates of $263.9 million
  • Free cash flow was negative $13 million, down from positive free cash flow of $53.7 million in previous quarter
  • Gross Margin (GAAP): 75.3%, up from 74% previous quarter

"Q3 was another outstanding quarter for Qualtrics, and our leadership position has never been stronger as we continue to innovate and define the category we created," 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.

The growing adoption of digital tools means that organizations are generating more data that can be used to analyze their brands and products. This trend should increase demand for experience management software in the years ahead.

Sales Growth

As you can see below, Qualtrics's revenue growth has been very strong over the last year, growing from quarterly revenue of $192.8 million, to $271.6 million.

Qualtrics Total Revenue

And unsurprisingly, this was another great quarter for Qualtrics with revenue up an absolutely stunning 40.8% year on year. On top of that, revenue increased $22.2 million quarter on quarter, a very strong improvement on the $10.7 million increase in Q2 2021, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 19.3% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better than Qualtrics. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

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, licences, technical support and other necessary running expenses was at 75.3% in Q3.

Qualtrics Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like Qualtrics to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

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 $23.4 billion and more than $589.9 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the very optimistic revenue guidance provided for the next quarter. And we were also glad that the revenue guidance for the rest of the year was upgraded. Zooming out, we think this was a great quarter and we have no doubt shareholders will feel excited about the results. The company is up 6.26% on the results and currently trades at $46.98 per share.

Qualtrics may have had a good quarter, so should you 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.