Like much of the cloud software sector, Appian's (APPN 2.20%) stock price has been on a roller coaster for much of the last two years.
Share prices surged as high as $260 a year ago with the help of a short squeeze before crashing down to just around $50 a share. However, what's remarkable is that while the stock has been highly volatile, Appian's performance as a company has been incredibly steady during that time.
This was demonstrated again last week when the company delivered another strong quarterly earnings report, topping its own guidance and analyst estimates. The fourth-quarter results were enough to earn the stock a 13% price boost on Friday.
Here are some of the highlights in the report:
- Cloud subscription revenue, the metric the company is optimizing for, jumped 39% to $51.2 million.
- Total revenue, which includes term licenses and professional services, increased 29% to $105 million, beating estimates of $95.3 million.
- Its adjusted loss per share expanded from $0.03 to $0.16, but that also beat expectations for a loss of $0.23 per share.
- For 2022, the company expects revenue to grow 20%-21% to $444 million-$446 million, ahead of the consensus estimate of $424.3 million.
Appian is an accelerating business
2021 was a big year for Appian. It acquired Lana Labs, taking an important step in expanding its low-code platform to include process mining, the activity that happens before its low-code workflows get created and then automated. Companies have traditionally used different vendors for process mining and low-code software, but uniting the two makes sense as the functions are connected. By doing so, Appian is leading the market, taking a step ahead of its competitors.
The company also revealed some metrics it hadn't previously highlighted, showing how the business ramped higher in 2021. While key metrics like cloud-subscription revenue growth and total revenue growth accelerated from 2020 to 2021, the company also revealed that growth in remaining performance obligations (RPO) increased from 17% in 2020 to 38% in 2021 with RPO (which is a proxy for a backlog in orders and demonstrates strong demand) reaching $285.5 million.
Growth in high-value customers also jumped, going from 55 customers with $1 million or more in annual revenue to 75, and the company said that the number of workflows created on its platform jumped 81% last year to 4.5 billion. That's important because usage is growing significantly faster than sales. That shows not only that Appian's software is an important tool for its customers but also there is some slack in demand. In an interview, CEO Matt Calkins called that usage growth a "reservoir of potential," or something the company could monetize at some point in the future, though it has no plans to do so currently.
The growth in workflows, which have more than tripled over the last two years, also helps illustrate how increasing functionality is driving usage, showing the improvements the company has made to the Appian product suite over the last year or two are paying off.
What to expect in 2022
The integration of process mining into the software suite should be a key catalyst this year, and the company just became the first low-code software company to earn Provisional Authorization at Impact Level 5 (IL-5) from the federal government, giving it an advantage in securing contracts with agencies like the Department of Defense. As a combined unit, the federal government is Appian's biggest customer, and it has contracts with 45 different agencies so that authorization should give it an edge in an important market.
In addition to those steps, the momentum the company is building with high-value customers gives Calkins confidence that Appian can command the high end of the market, which offers higher margins and customers willing to pay up for a differentiated product.
The low-code market is expected to take off this decade as Gartner has predicted that 65% of app development will be done with low code by 2024. Appian seems well-positioned to take advantage of that transition, especially after its expansion into process mining.
Now trading at a price-to-sales ratio of 9 based on its guidance for 2022 and with a track record of exceeding its guidance, the risk/reward on the cloud stock looks as favorable as it has in a long time.