12275

ForgeRock (NYSE:FORG) Beats Q4 Sales Targets But Stock Drops


Jabin Bastian /
2022/03/01 4:19 pm EST
Add to Watchlist

Cybersecurity software provider ForgeRock (NYSE: FORG) reported Q4 FY2021 results topping analyst expectations, with revenue up 19.3% year on year to $47.9 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $46.5 million, 0.98% below analyst estimates. ForgeRock made a GAAP loss of $12.3 million, down on its profit of $1.96 million, in the same quarter last year.

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

ForgeRock (FORG) Q4 FY2021 Highlights:

  • Revenue: $47.9 million vs analyst estimates of $47.1 million (1.69% beat)
  • EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.12
  • Revenue guidance for Q1 2022 is $46.5 million at the midpoint, below analyst estimates of $46.9 million
  • Management's revenue guidance for upcoming financial year 2022 is $213.5 million at the midpoint, beating analyst estimates by 1.11% and predicting 19.6% growth (vs 39.9% in FY2021)
  • Free cash flow was negative $6.08 million, compared to negative free cash flow of $2.15 million in previous quarter
  • Gross Margin (GAAP): 79.2%, down from 85.3% same quarter last year

“It was a momentous year for ForgeRock that was capped off with exceptional acceleration in ARR growth and we’re raising the bar for growth in 2022," said Fran Rosch, CEO of ForgeRock.

Founded in Norway by former Sun Microsystems engineers, ForgeRock (NYSE:FORG) offers software as a service that helps companies secure and manage the identity of their customers and employees.

As software penetrates corporate life, employees are using more apps every day, on more devices, in more locations. This drives the need for identity and access management software that help companies efficiently manage who has access to what, and ensure that access privileges are secure from cyber criminals.

Sales Growth

As you can see below, ForgeRock's revenue growth has been very strong over the last year, growing from quarterly revenue of $40.1 million, to $47.9 million.

ForgeRock Total Revenue

This quarter, ForgeRock's quarterly revenue was once again up 19.3% year on year. We can see that the company increased revenue by $3.67 million quarter on quarter. That's a solid improvement on the $273 thousand increase in Q3 2021, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates ForgeRock is expecting revenue to grow 9.66% year on year to $46.5 million, slowing down from the 53.1% 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 $213.5 million at the midpoint, growing 19.6% compared to 39.9% increase in FY2021.

There are others doing even better than ForgeRock. 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 150% since the IPO last 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. ForgeRock'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 79.2% in Q4.

ForgeRock Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 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 a good gross margin that allows companies like ForgeRock to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from ForgeRock's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on ForgeRock’s balance sheet, but we note that with a market capitalization of $1.21 billion and more than $369.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see ForgeRock revenue guidance for the full year exceed market's expectations even if just slightly. On the other hand, the guidance indicates a significant slowdown and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for ForgeRock. The company is down 7.12% on the results and currently trades at $15.39 per share.

ForgeRock may have had a tough quarter, but does that actually create an opportunity to 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.