Paycom Software (NYSE:PAYC) Posts Better-Than-Expected Sales In Q4, Stock Soars

Kayode Omotosho /
2022/02/08 4:34 pm EST

Online payroll and human resource software provider Paycom (NYSE:PAYC) announced better-than-expected results in the Q4 FY2021 quarter, with revenue up 28.9% year on year to $284.9 million. The company expects that next quarter's revenue would be around $343 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Paycom Software made a GAAP profit of $48.6 million, improving on its profit of $24.3 million, in the same quarter last year.

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

Paycom Software (PAYC) Q4 FY2021 Highlights:

  • Revenue: $284.9 million vs analyst estimates of $275.8 million (3.31% beat)
  • EPS (non-GAAP): $1.11 vs analyst estimates of $1.08 (2.48% beat)
  • Revenue guidance for Q1 2022 is $343 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2022 is $1.31 billion at the midpoint, beating analyst estimates by 1.19% and predicting 24.5% growth (vs 20% in FY2021)
  • Free cash flow of $55.7 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 83.6%, down from 88.1% same quarter last year

“We delivered very strong results in 2021, reflecting outstanding execution and robust demand for Paycom’s differentiated solution,” said Paycom’s founder and CEO, Chad Richison.

Founded in 1998 as one of the first online payroll companies. Today, Paycom (NYSE:PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.

HR software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy to use platforms.

Sales Growth

As you can see below, Paycom Software's revenue growth has been strong over the last year, growing from quarterly revenue of $220.9 million, to $284.9 million.

Paycom Software Total Revenue

This quarter, Paycom Software's quarterly revenue was once again up a very solid 28.9% year on year. On top of that, revenue increased $28.7 million quarter on quarter, a very strong improvement on the $14 million increase in Q3 2021, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates Paycom Software is expecting revenue to grow 26% year on year to $343 million, improving on the 12.3% 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 $1.31 billion at the midpoint, growing 24.5% compared to 20% increase in FY2021.

There are others doing even better than Paycom Software. 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.


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. Paycom Software'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 83.6% in Q4.

Paycom Software Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 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 great gross margin, that allows companies like Paycom Software to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Paycom Software's Q4 Results

With a market capitalization of $19 billion, more than $277.9 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed that Paycom Software guided for revenue growth to accelerate next year. And we were also excited to see that it outperformed analysts' revenue expectations. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 5.7% on the results and currently trades at $353.58 per share.

Should you invest in Paycom Software 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.