Commvault (CVLT)

Data protection software company Commvault (NASDAQ:CVLT) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 18.4% year on year to $276.2 million. The company expects next quarter’s revenue to be around $299 million, close to analysts’ estimates. Its non-GAAP profit of $0.91 per share was 3.3% below analysts’ consensus estimates.

Company Overview

Born from the need to create ironclad protection in an increasingly dangerous digital world, Commvault (NASDAQ:CVLT) provides data protection and cyber resilience software that helps organizations secure, back up, and recover their data across on-premises, hybrid, and multi-cloud environments.

Data is the lifeblood of the internet and software in general, and the amount of data created is accelerating. As a result, the importance of storing the data in scalable and efficient formats continues to rise, especially as its diversity and associated use cases expand from analyzing simple, structured datasets to high-scale processing of unstructured data such as images, audio, and video.

Commvault competes in the data protection software market with players like Cohesity, Dell-EMC, Rubrik, Veeam, Veritas, IBM, Druva, and Avepoint, all offering products that overlap with portions of Commvault's comprehensive solution suite.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Commvault’s sales grew at a sluggish 9.8% compounded annual growth rate over the last five years. This fell short of our benchmark for the software sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Commvault’s annualized revenue growth of 17.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Commvault reported year-on-year revenue growth of 18.4%, and its $276.2 million of revenue exceeded Wall Street’s estimates by 1.1%. Company management is currently guiding for a 13.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Commvault’s ARR punched in at $1.04 billion in Q3, and over the last four quarters, its growth was impressive as it averaged 21.3% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Commvault a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Commvault is extremely efficient at acquiring new customers, and its CAC payback period checked in at 7.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Commvault more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

For software companies like Commvault, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Commvault’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 81.5% gross margin over the last year. That means Commvault only paid its providers $18.45 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Commvault has seen gross margins decline by 0.6 percentage points over the last 2 year, which is slightly worse than average for software.

Commvault produced a 80.1% gross profit margin in Q3, down 1.6 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Commvault has managed its cost base well over the last year. It demonstrated solid profitability for a software business, producing an average operating margin of 7.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Commvault’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Commvault generated an operating margin profit margin of 4.5%, down 1.9 percentage points year on year. Since Commvault’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Commvault has shown impressive cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that give it the option to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 19.1% over the last year, better than the broader software sector.

Commvault’s free cash flow clocked in at $73.58 million in Q3, equivalent to a 26.6% margin. This result was good as its margin was 3.6 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts’ consensus estimates show they’re expecting Commvault’s free cash flow margin of 19.1% for the last 12 months to remain the same.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Commvault is a profitable, well-capitalized company with $1.06 billion of cash and $908.5 million of debt on its balance sheet. This $155.1 million net cash position is 2.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Commvault beat analysts’ billings expectations this quarter. On the other hand, adjusted operating income missed, suggesting that growth was less profitable than expected. Overall, this print could have been better, and the stock traded down 12.7% to $151.98 immediately following the results.

Updated: December 3, 2025 at 9:34 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Commvault.

Commvault is a fine business. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while Commvault’s operating margin hasn't moved over the last year, its efficient sales strategy allows it to target and onboard new users at scale. On top of that, its admirable gross margin indicates excellent unit economics.

Commvault’s price-to-sales ratio based on the next 12 months is 4.5x. Looking at the software space right now, Commvault trades at a compelling valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $193.70 on the company (compared to the current share price of $123.95), implying they see 56.3% upside in buying Commvault in the short term.