Appian (APPN 6.98%) isn't a household name, but it's helping more customers than ever make their businesses more efficient with its low-code software platform. On a Fool Live episode recorded on March 3, Fool contributors Brian Withers and Matt Frankel discuss the company's most recent quarterly results and why its sticky platform is something that investors love.
Matthew Frankel: But in the top four is the one of them that I'm about to talk about, which is Appian, not to be confused with Apple, which is Brian's next one we're just going to talk about. I actually, funny story, once bought Appian shares because I typed in the ticker wrong and [laughs] hit "buy" because I thought I was getting Apple because my mind was all jumbled.
But anyway, Appian is another one. The stock has really cooled off. It was on a tear earlier this year. It's about 20 percent down from its peak. Like The Trade Desk when I was talking about their earnings report, it was strong, but not a blowout. The stock was really priced for perfection, and we got great numbers. Subscription revenue, which is the most important component, was up 32 percent year over year. The cloud-based revenue retention rate, which is essentially a measure of how much more people are spending over time, was 119 percent, which was an improvement from 115 in the third quarter. So that was accelerating, which is nice to see.
Appian's gross margin is up almost 700 basis points, it's seven percentage points year over year. It's still not a profitable company, no one expects it to be with the growth numbers it's been putting up. But their losses have narrowed considerably. They had a 50 percent year-over-year growth rate in subscription customers, which is a pretty impressive statistic, and it's one of the few companies that's actually issuing guidance.
Management's expecting subscription revenue to grow by another 30 percent or more year over year. This is not a cheap stock still. It's up by a lot. It's one of the best performers in my portfolio. It's the first one that we've talked about today that I actually own, and it's one of my biggest positions. It's one of my best performers still even after the recent pullback. But it is not cheap, it trades for about 30 times forward sales, which is a pretty high multiple for an unprofitable company.
It has a lot to prove, but the story is really playing out well. As long as they're growing both their customer base and they're growing their per-customer revenue, which is that revenue retention rate I was talking about, the story still has legs, it still has a bright future, and I think Appian will justify its valuation and then some if you look at like 10 years from now, I think we're going to look back and think it was cheap at these levels. So I'm holding strong. Are you an Appian shareholder, Brian?
Brian Withers: I was. It was one of those things where I was trying to trim down my portfolio and I feel like they are executing much better today and they've caught on. Unfortunately, I sold it before the big tailwinds from last year.
I just love this growth in customers, and you can tell that they have a sticky platform with this revenue retention of 119 percent. The customers are getting in and then they are realizing the benefit and the value that Appian brings, and they're saying, well, let's use Appian over here. Let's expand on this use-case over here. That's a great way to scale their costs and marketing value because that's really no cost to them to bring that extra revenue in. So that's really exciting for Appian.