Qualtrics (NASDAQ:XM) Surprises With Q4 Sales But Full Year Guidance Underwhelms

Full Report / January 25, 2023
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Online survey software provider Qualtrics (NASDAQ:XM) reported Q4 FY2022 results topping analyst expectations, with revenue up 23.1% year on year to $389 million. The company expects that next quarter's revenue would be around $393 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qualtrics made a GAAP loss of $256.3 million, improving on its loss of $309.7 million, in the same quarter last year.

Qualtrics (XM) Q4 FY2022 Highlights:

  • Revenue: $389 million vs analyst estimates of $381.1 million (2.08% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.02 (23.6% beat)
  • Revenue guidance for Q1 2023 is $393 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2023 is $1.66 billion at the midpoint, missing analyst estimates by 1.32% and predicting 14.1% growth (vs 36.4% in FY2022)
  • Free cash flow of $8.9 million, up from negative free cash flow of $39 million in previous quarter
  • Gross Margin (GAAP): 70.5%, in line with same quarter last year

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.

Data is commonly stored in silos across the organization, making it difficult to generate efficient insights from the feedback received from customers, employees, and partners. Qualtrics makes it easy and efficient to extract and unify the data to generate actionable business insights.

For example, when JetBlue observed a spike in negative feedback and reduced customer satisfaction at one of their airport terminals, they investigated the issue and found the terminal speaker was broken and passengers couldn’t hear what the gate agent was saying. With Qualtrics, JetBlue was able to send an automated alert to the airport maintenance crew and the issue was fixed the same day.

The software platform was originally designed for academic researchers. This has led to its widespread adoption in universities around the world, an important factor that has contributed to its success to date. Qualtrics has since evolved its software for the business world, which is increasingly flooded with data.

The Internet has given customers more choice on whom to conduct business with and has also given them the power to easily share their experiences with other customers. These twin dynamics effectively have increased pressure on companies to both improve their customer service and also monitor their brand reputation online, driving the need for customer experience software offerings.

The experience management space includes competitors such as Adobe (NASDAQ:ADBE), IBM (NYSE:IBM), SurveyMonkey (now called Momentive, NASDAQ:MNTV), and Medallia (NYSE:MDLA).

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 $213.5 million in Q4 FY2020, to $389 million.

Qualtrics Total Revenue

This quarter, Qualtrics's quarterly revenue was once again up a very solid 23.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $11.5 million in Q4, compared to $21.1 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 Qualtrics is expecting revenue to grow 17% year on year to $393 million, slowing down from the 40.6% 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 $1.66 billion at the midpoint, growing 14.1% compared to 35.6% 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. 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 70.5% in Q4.

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. This is 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.

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. Qualtrics's free cash flow came in at $8.9 million in Q4, turning positive year on year.

Qualtrics Free Cash Flow

Qualtrics has burned through $33.2 million in cash over the last twelve months, resulting in a negative 2.28% free cash flow margin. This below average FCF margin is a result of Qualtrics's need to invest in the business to continue penetrating its market.

Key Takeaways from Qualtrics's Q4 Results

With a market capitalization of $6.71 billion Qualtrics is among smaller companies, but its more than $719.8 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see Qualtrics outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that Qualtrics's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from Qualtrics. The company is up 1.25% on the results and currently trades at $11.35 per share.

Is Now The Time?

When considering Qualtrics, 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 Qualtrics we will be cheering from the sidelines. Its revenue growth has been strong, though we don't expect it to maintain historical growth rates. Unfortunately, its customer acquisition is less efficient than many comparable companies, and its gross margins aren't as good as other tech businesses we look at.

Qualtrics's price to sales ratio based on the next twelve months is 3.9x, 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.

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