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Expect the Wild Ride to Continue When Appian Reports Earnings

By Danny Vena – Oct 31, 2019 at 8:40AM

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The low-code specialist has been on fire this year, and this could be just the beginning.

Appian (APPN 2.89%) has been incredibly volatile this year. The software-as-a-service (SaaS) company, which provides a cloud platform to help businesses develop software and apps, has seen its stock soar as much as 130% in 2019 before giving back some of those gains. The stock is still up 68% so far this year, driven higher by its fast-growing subscription revenue.

Shareholders are expecting the Cinderella story to continue when Appian reports the financial results of its third quarter after the market closes on Thursday, Oct. 31. Let's take a look at a few areas that will be of significant interest to investors when the company reports earnings.

A man and woman working on a computer, designing a smartphone app.

Image source: Getty Images.

Revenue growth

In the second quarter, Appian reported revenue of $67 million, up 12% year over year, on top of 36% growth in the prior-year quarter. Both of the company's operating segments contributed to the growth. Total subscriptions, software, and support revenue grew to $39.3 million, up 19% year over year, while professional services revenue -- which tends to be lumpy -- grew to $27.7 million, up about 3%.

Those gains are expected to continue. For the upcoming third quarter, Appian is forecasting total revenue in a range of $65 million to $65.5 million, which would represent growth of between 18% and 19%. Wall Street is firmly in the company's camp, as analysts' consensus estimates are calling for revenue of $65.24 million, at the midpoint of management's guidance.

Recurring revenue

The most important component of Appian's growth has been the continued strong gains in its subscription revenue, which grew to $38 million in the second quarter, up 41% year over year, and accelerating from 36% gains in the prior-year quarter. For a subscription-based business, this recurring revenue provides a steady stream of income that investors can rely on when assessing the company's future prospects.

Appian's management believes this growth will continue. For the third quarter, the company is forecasting subscription revenue in a range of $38.8 million to $39.0 million, representing year-over-year growth of between 32% and 33% -- this on top of 42% gains in the prior-year quarter.

Continuing losses

As a high-growth company, Appian is investing heavily to ensure its future success. One of the by-products of that investment is a lack of profits, since the company plows any anticipated earnings back into its growth.

For the second quarter, Appian generated an adjusted net loss of $6.6 million, an improvement from the $8.8 million loss in the prior-year quarter. This resulted in an adjusted loss per share of $0.10, also improved from the loss per share of $0.14 in the year-ago period.

Management plans to continue investing heavily in growth and, for the third quarter, is guiding for an adjusted loss per share in a range of $0.15 to $0.16. For their part, analysts are expecting a loss per share of $0.15.

Filling the need

As the dominance of mobile apps grows and the shortage of skilled coders to develop them continues, Appian stands at the crossroads of an opportunity. The company's market cap of less than $3 billion (as of this writing) ensures that the stock will continue to be volatile.

That said, the tidal wave of app usage continues to skyrocket, and Appian provides the tools companies need to tap this massive opportunity. Given the long runway, investors with a tolerance for volatility stand to benefit from this continuing trend.

We'll know more when Appian reports earnings on Thursday.

Danny Vena owns shares of Appian. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.

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