Avalara (NYSE:AVLR) Q3 Sales Beat Estimates, Next Quarter Growth Looks Optimistic

Adam Hejl /
2021/11/04 4:48 pm EDT
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Tax compliance software maker Avalara (NYSE:AVLR) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 41.6% year on year to $181.1 million. Guidance for next quarter's revenue was $184 million at the midpoint, which is 1.16% above the analyst consensus. Avalara made a GAAP loss of $32.5 million, down on its loss of $12.7 million, in the same quarter last year.

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

Avalara (AVLR) Q3 FY2021 Highlights:

  • Revenue: $181.1 million vs analyst estimates of $170.3 million (6.35% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.09 ($0.06 beat)
  • Revenue guidance for Q4 2021 is $184 million at the midpoint, above analyst estimates of $181.8 million
  • Free cash flow of $6.37 million, down 68.4% from previous quarter
  • Net Revenue Retention Rate: 116%, in line with previous quarter
  • Customers: 17,400, up from 16,570 in previous quarter
  • Gross Margin (GAAP): 70.7%, down from 72.6% same quarter last year

“The third quarter was another great quarter for Avalara, demonstrating the strength and durability of our business model. We reported total revenue of $181 million, representing an increase of 42% year-over-year, one of our strongest quarters in history,” said Scott McFarlane, Avalara co-founder and chief executive officer.

Founded by Scott McFarlane in 2004, Avalara (NYSE:AVLR) offers software as a service that provides companies with real-time information on how much tax to charge and automates tax compliance.

The demand for tax management software is driven by an increase in digital commerce and ongoing adoption of modern technology platforms which are scalable and make it easy to automate business processes.

Sales Growth

As you can see below, Avalara's revenue growth has been very strong over the last year, growing from quarterly revenue of $127.8 million, to $181.1 million.

Avalara Total Revenue

And unsurprisingly, this was another great quarter for Avalara with revenue up an absolutely stunning 41.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $12.1 million in Q3, compared to $15.4 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 21.8% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Avalara. 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.

Customer Growth

You can see below that Avalara reported 17,400 customers at the end of the quarter, an increase of 830 on last quarter. That is a bit slower customer growth than last quarter but still in line with what we are used to seeing lately, suggesting that the company still has decent sales momentum.

Avalara Customers

Key Takeaways from Avalara's Q3 Results

Sporting a market capitalization of $15.9 billion, more than $1.53 billion in cash and with positive free cash flow over the last twelve months, we're confident that Avalara has the resources it needs to pursue a high growth business strategy.

We enjoyed seeing Avalara’s impressive revenue growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a slight slowdown in customer growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 1.16% on the results and currently trades at $184 per share.

Should you invest in Avalara 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.