Shares of cloud-based enterprise planning software provider Anaplan (PLAN 0.58%) fell following its earnings report on Tuesday, May 26. Shares continued to fall the following day as high-flying software and technology stocks sold off for lower-priced value stocks in other sectors of the economy that will benefit more from an economic reopening.
On the earnings release, Anaplan reported a slowdown in billings and pulled its guidance for the rest of the year. Still, with the stock now down nearly 30% from its February all-time highs, Anaplan is now underperforming many other cloud-based software stocks that have mostly bounced back -- and then some -- from the coronavirus crash in March. That may have opened up a rare opportunity in this high-growth sector of the digital economy.
Anaplan actually delivered a solid quarter, in which revenue grew a solid 36.9%, subscription revenue grew 44%, and adjusted (non-GAAP) net loss per share came in at ($0.10). All of these metrics actually came in ahead of expectations, showing impressive growth, especially considering that the first quarter was marked by severe business disruptions thanks to COVID-19.
However, Anaplan's bookings metric -- which reflects the change in revenue plus the change in deferred revenue -- only increased 10% in the quarter. That was down from 25% growth in the fourth quarter and down far, far from the 50%-plus growth rates the company was putting up during 2019.
Remember, deferred revenue is revenue that has been billed, but not yet recognized. Since Anaplan and many other software companies bill on an annual or multiyear basis, much of its quarterly revenue comes from contracts signed in prior quarters. Therefore, analysts tend to focus on bookings to get a "true" sense of quarterly growth, and that metric definitely slowed.
No time to panic
While this slowdown would be concerning in normal times, it's certainly not unexpected during a quarter marked by the global outbreak of COVID-19. The pandemic, unsurprisingly, precipitated a halt in many new deals, especially in hard-hit areas such as travel and hospitality, according to management.
Anaplan's products are very consequential and are usually deployed on a top-down basis by a company's CFO across an entire organization. Of course, many large-scale spending projects were likely put on hold during the quarter as companies looked to conserve cash. "This is an example of the type of major accounts we are focused on, which can take longer to close and experience more variability in timing," said CEO Frank Calderoni on the conference call with analysts.
Reasons for optimism
Digging deeper, it still seems Anaplan's growth has only hit a speed bump, not major resistance. First, during the conference call, management stressed that it believed none of the quarter's delayed deals had been lost; they would either be pushed into the second quarter or further out into the year as clients continue to assess their spending needs.
Second, various usage-based metrics were positive. Management pointed out that Anaplan's platform had helped many institutions and businesses affected by COVID-19. According to management, Anaplan's community of experts had developed 17 new models for COVID-19 use cases, including, "hospital bed planning, PPE redistribution and FEMA-type expense tracking." Anaplan also offered a 90-day free trial for its app, resulting in downloads rising 80% over the normal monthly average during the past month. In addition, management reported a surge in Anaplan training sessions, as many quarantined or laid-off workers have been learning Anaplan's software during the quarantine period.
Finally, not all of the numbers in the quarter were bad -- especially with regards to Anaplan's existing customers. Anaplan's net expansion rate was 117%, down about five to six percentage points from prior quarters, but still positive, showing that existing customers continued to buy more Anaplan seats and services even in the COVID-19-affected quarter. Management said it didn't see net expansion falling below 110% going forward, even when adjusting for increased churn at the high end of its models. In addition, the number of customers spending more than $250,000 annually increased quarter over quarter, from 353 to 367.
Planning to be better
While the current situation is a causing a slowdown in Anaplan's new business, existing customers seem very happy, and the company's long-term outlook still looks bright. Its cloud-based platform greatly helps businesses save time and money in coordinating all of their different departments, making Anaplan most helpful to large companies that can afford to buy lots of software.
Slowdown aside, Anaplan's positive usage metrics and its leadership in a new mission-critical platform should result in much better billings growth later this year and next. That means Anaplan should be on any software investor's watchlist this week, especially if the stock falls further as investors rotate out of growth names.