SailPoint's (NYSE:SAIL) Q3 Sales Top Estimates, Stock Soars

Full Report / November 09, 2021
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Identity governance software company SailPoint (NYSE:SAIL) announced better-than-expected results in the 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, 1% below analyst estimates. SailPoint made a GAAP loss of $19.8 million, down on its loss of $676 thousand, in the same quarter last year.

SailPoint (SAIL) Q3 FY2021 Highlights:

  • Revenue: $110.1 million vs analyst estimates of $103.8 million (5.98% beat)
  • EPS (non-GAAP): $0.00 vs analyst estimates of -$0.07 ($0.07 beat)
  • Revenue guidance for Q4 2021 is $113 million at the midpoint, 1% 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

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.

More companies are digitizing their processes, leading to employees needing access to a growing number of applications, systems and data. Manually tracking who has access to what takes a lot of time, work and is prone to errors, resulting in new hires having to wait prolonged time to get access to the tools they need and employees who quit the company or changed roles being left with access to sensitive data. This can lead to productivity loss, risk of cyber security incidents, information theft and compliance problems.

To solve these problems, SailPoint provides a modern software platform to manage user profiles, passwords, and also grant and monitor access to business apps. SailPoint provides companies with a central dashboard where they have instant visibility into user permissions across the organization and can easily adjust access to applications as users change roles, take on new projects or leave the organization. The software also automatically manages approval processes and compliance enforcement, making sure that only employees passing required criteria, whether it is training or management permission are granted access. Using artificial intelligence based technology SailPoint also helps IT detect suspicious and risky activities, such as fake user accounts, irregular authentication, and weak security policies.

For example, whenever a company recruits a new employee, SailPoint ensures the individual is given all the necessary access on the minute they start, but only to the applications and data they need, nothing more. As the employee moves to a new department, SailPoint monitors and updates the apps and devices that can be accessed. This means a sales representative isn’t able to access apps and data in the legal department. Similarly, when an employee leaves an organization, SailPoint automatically revokes access to any asset owned by their former employer without the need to send IT helpdesk requests. This ensures that adequate security measures are maintained at all times.

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.

Competitors in the identity management space include Okta (NASDAQ:OKTA), Ping Identity (NYSE:PING) and Computer Associates (owned by Broadcom (NASDAQ:AVGO)).

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 $7.62 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.


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 give us confidence that SailPoint has the resources it needs to pursue a high growth business strategy.

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 9% on the results and currently trades at $52.50 per share.

Is Now The Time?

When considering SailPoint, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although we have other favorites, we understand the arguments that SailPoint is not a bad business. Its revenue growth has been solid. And on top of that, its very efficient customer acquisition hints at the potential for strong profitability.

SailPoint's price to sales ratio based on the next twelve months is 9.8x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that SailPoint doesn't trade at a completely unreasonable price point.

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