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SailPoint (NYSE:SAIL) Q3: Beats On Revenue, Stock Jumps 11.5%


Adam Hejl /
2021/11/09 4:35 pm EST
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Identity governance software company SailPoint (NYSE:SAIL) beat analyst expectations in Q3 FY2021 quarter, with revenue up 17.1% year on year to $110.1 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $113 million, or 1% below analyst estimates. SailPoint made a GAAP loss of $19.8 million, down on its loss of -$0.7 million, in the same quarter last year.

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

SailPoint (SAIL) Q3 FY2021 Highlights:

  • Revenue: $110.1 million vs analyst estimates of $103.8 million (5.98% beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.07 ($0.07 beat)
  • Revenue guidance for Q4 2021 is $113 million at the midpoint, below analyst estimates of $114.1 million
  • Free cash flow of $12.7 million, up from negative free cash flow of -$13.62 million in previous quarter
  • Gross Margin (GAAP): 71.7%, down from 77.8% same quarter last year

“SailPoint delivered another excellent quarter, highlighted by 44% total ARR growth and 39% subscription revenue growth. Demand for our SaaS and subscription-based identity security offerings continues to be very strong as global enterprises recognize that SailPoint’s modern identity security solutions are core to their next-generation technology stack,” said Mark McClain, SailPoint CEO and Founder.

Started by Mark McClain after his previous identity management company got acquired by Sun Microsystems, SailPoint (NYSE:SAIL) provides software for organizations to manage the digital identity of employees, customers, and partners.

As companies move more data and applications into the cloud and more users are granted access to these resources, it brings more business efficiencies but also opens them to more vulnerabilities. Managing user access through a centralized cloud-based solution is a way to reduce the risks and the demand for identity security platforms has been growing.

Sales Growth

As you can see below, SailPoint's revenue growth has been measured over the last year, growing from quarterly revenue of $94 million, to $110.1 million.

SailPoint Total Revenue

This quarter, SailPoint's quarterly revenue was once again up 17.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $7.6 million in Q3, compared to $11.7 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 12.6% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than SailPoint. 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. SailPoint'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 71.7% in Q3.

SailPoint Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 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 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.

Key Takeaways from SailPoint's Q3 Results

With a market capitalization of $4.52 billion SailPoint is among smaller companies, but its more than $421.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We liked to see that SailPoint beat analysts’ revenue expectations pretty strongly this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated a little. Overall, this quarter's results were not the best we've seen from SailPoint. The company is up 11.5% on the results and currently trades at $53.75 per share.

SailPoint 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.