first year on the public market has been a rough one. But it has made the cloud software company into a relative rarity—an affordable, high-growth name.
The Utah-based company, which provides subscription-based software to businesses looking to evaluate their customers’ experiences, went public a year ago Friday. That was a couple of years later than its original plan; German software giant SAP bought Qualtrics for $8 billion in cash just days ahead of its first proposed listing in November 2018. But Qualtrics was doing well enough—especially relative to SAP’s much larger but still largely traditional enterprise software business—that SAP decided to spin the newest member of its family back out.
SAP remains a majority owner of Qualtrics, which has led some investors to assign a conglomerate discount to the shares. The stock has been a lackluster performer more or less since its listing, even before a massive selloff hit the entire cloud sector in November, driven by a market rotation out of high-valued and riskier sectors. Ahead of its fourth-quarter results late Wednesday, Qualtrics shares closed 19% below their initial public offering price and 47% down in the last three months. That is worse than most of its peers have fared recently; the BVP Nasdaq Emerging Cloud Index has shed nearly 35% over the same span.
That seems excessive in light of Qualtrics’s solid financial performance. Strong demand for the company’s experience-management software has allowed Qualtrics to beat Wall Street’s revenue targets every quarter since listing, with the largest beat coming in the latest period. Fourth-quarter revenue jumped 48% year over year to $316 million, with growth accelerating from the 41% rise reported for the third quarter. The company’s annual revenue also just crossed the $1 billion mark for the first time, and it projected 31% revenue growth for 2022—besting analysts’ projections for 28% growth for the year.
But even with the stock’s 6% jump Thursday following the results, Qualtrics is still trading at just over 10 times forward sales. Only one other company on the BVP Index generating more than $1 billion in annual revenue and projected to exceed 30% growth this year trades at a lower multiple.
That should appeal to investors looking to take advantage of the sector’s recent reset. Qualtrics was highlighted in a report by Goldman Sachs last month as one of a handful of cloud software companies “with balanced growth and margin profiles at a reasonable price” in the midst of the selloff. And following the latest results, Brian Schwartz of
wrote that the stock is “pricing in a fairly muted future outcome.” Brian Peterson of Raymond James predicted Thursday that Qualtrics “will remain on a 30% growth trajectory for the foreseeable future.”
In a sector where cheap valuations typically underscore major problems, anomalies like Qualtrics are worth checking out.
Write to Dan Gallagher at dan.gallagher@wsj.com
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