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Why Appian Is Nosediving Today

By Brian Feroldi – Updated Apr 25, 2019 at 10:54AM

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The company's fourth-quarter results were solid, but traders are not exactly thrilled with management's guidance.

What happened

Shares of Appian (APPN -0.78%), a company focused on low-code software, fell as much as 13% in early-morning trading on Friday. The stock was down about 6% as of 10:40 a.m. EST.

So what

Here's a review of the headline numbers from Appian's fourth quarter:

  • Revenue jumped 19% to $60.2 million. This was driven by a 44% jump in subscription revenue and flat professional services sales. This was much better than the $55.8 million that Wall Street was expecting and also beat management's guidance.
  • The subscription revenue retention rate was 117%.
  • Non-GAAP net loss was $9.1 million, or $0.14 per share. This was also better than the consensus analyst estimate of $0.16.

So what can explain the sell-off if Appian beat expectations? The most likely answer is the guidance that is being shared for the upcoming quarter:

Metric Q1 2019 Guidance Range Implied Change
Subscription revenue $33.3 million to $33.6 million 31% to 32%
Total revenue $59.5 million to $59.8 million 15% to 16%
Non-GAAP operating loss ($10.5 million) to ($10.0 million) N/A
Non-GAAP EPS ($0.17) to ($0.16) N/A

Data source: Appian.

Wall Street was expecting $59 million in revenue, so the guidance looks good on that metric. However, the implied subscription revenue growth rate of 32% would represent a substantial slowdown from the 40% growth rate that was produced in all of 2019. That forecast likely isn't sitting well with traders.

Another sticking point is that the current estimate calls for a non-GAAP net loss of $0.12 per share. That's quite a bit lower than the company's estimate of about $0.17.

Check out the latest Appian earnings call transcript.

Woman sitting in front of computer screen with code on it.

Image source: Getty Images.

It's a similar story for the full-year 2019 guidance, too:

Metric Guidance Range 
Implied Change
Subscription revenue $148 million to $150 million 28% to 30%
Total revenue $258.5 million to $262.5 million 14% to 16%
Non-GAAP operating loss ($29.5 million) to ($27.5 million) N/A
Non-GAAP EPS ($0.46) to ($0.42) N/A

Data source: Appian.

These numbers look quite good when compared to Wall Street's revenue and non-GAAP EPS estimate of $255.3 million and negative $0.44, respectively. However, the subscription revenue growth rate of about 29% represents a substantial deceleration from the 40% growth rate in 2019.

Now what

Appian has established a history of setting moderate expectations and then raising guidance after it crushes them, so it is probably appropriate to take this guidance with a big grain of sugar.

For example, in February of 2018, Appian told investors that it expected full-year subscription revenue to grow about 29% and that total revenue growth would be about 13%. The actual numbers came in at 40% and 28%, respectively. I think it is reasonable to believe that it will be a similar story for 2019. 

This Fool thinks that the modest guidance shows that Appian's management team knows how to play the beat-and-raise game that Wall Street loves so much. That's just one of many reasons why I plan on hanging on to my Appian shares for the long term.

Brian Feroldi owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.

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