Please ensure Javascript is enabled for purposes of website accessibility

Why Appian Stock Tumbled 25% in May

By Danny Vena - Jun 4, 2021 at 2:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the low-code software provider slipped further as overall growth slowed, but the news wasn't all bad.

What happened

Shares of Appian (APPN 7.60%) tumbled 25% in May, according to data provided by S&P Global Market Intelligence. The cloud-based company slipped after its first-quarter earnings report failed to live up to expectations. Making matters worse, Appian's overall revenue growth continued to tick lower, which left investors wanting more.

However, the company is in the midst of a transition to higher-quality revenue, so things are not as dire as they might seem.

A man looking at a computer monitor and  working on app development.

Image source: Getty Images.

So what

Investors had high expectations when Appian reported earnings, but the numbers were disappointing. Total revenue of $88.9 million increased 13% year over year, a far cry from the heady 31% growth in the prior-year quarter. 

Appian's cloud-subscription revenue fared far better, jumping 38% year over year to $39.1 million. At the same time, total subscription revenue of $63.8 million climbed 26%. Professional services revenue of $25.1 million slipped 12%.

The raw numbers don't tell the whole story. The low-code leader has been working feverishly on its high-growth, recurring cloud-subscription business. At the same time, the company is shifting much of its lumpy professional services business to partners. These partners, which recommend and help sell Appian's solutions, were responsible for 70% of the new customers that came to the company last year. 

That transition has been accelerating in recent months, so its services revenue will continue to decline. This allows Appian to focus most of its energy on the higher-quality subscription revenue that now makes up roughly 72% of the company's overall sales, up from 52% in 2017.

Now what

It's also important to take a broader view and put the stock's performance into perspective. Between late October and late January, Appian shares more than tripled, so it isn't surprising that the bar of investor expectations was set pretty high. Shares have pulled back sharply since then, but Appian stock is still up more than 50% over the past year compared to a 35% gain for the S&P 500, so it's beating the broader market by a wide margin

Appian is a company in transition. It's purposefully shedding its lumpy, less dependable services revenue in favor of higher-quality, recurring subscription revenue, which is more important to its future success. The temporary slowing of overall revenue growth is a natural consequence of this decision. Revenue growth should return to normal in relatively short order. Appian's keener focus on cloud-subscription revenue will pay dividends over the longer term but might result in some short-term growing pains. 

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Appian Stock Quote
$55.38 (7.60%) $3.91
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,210.24 (2.13%) $87.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.