There's no secret sauce when it comes to building a great company. Sometimes operators can do everything right and still come up short. In other cases, a stroke of luck completely outside the company's control can change its fortunes for the better.
Workiva (WK -0.04%) is a relatively quiet stock that doesn't get much attention. It offers a platform technology that helps organizations aggregate data across dozens of different applications, which effectively enables teams of remote employees to function more seamlessly. The pandemic environment was great for Workiva's business because its technology went from being a nice-to-have to becoming somewhat of a necessity.
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But as remote work becomes more common, there's a great case for buying the stock for the long run. Workiva is investing in new verticals, and its Q1 2022 report showed promising progress in all the right places. With the company's stock down 49% from its all-time high amid the broader tech sell-off, here's why it might be time to get involved.
Aggregating data from anywhere
Managers within large organizations have had to adapt to shifting workplace trends. Monitoring teams of employees who all work in the same building can be straightforward from a visibility perspective, but when some (or all) of those teams work remotely, it presents a significant challenge. That's especially true when those teams work across different software platforms, leaving managers to piece data together from different sources.
That's the main problem Workiva solves. Whether employees work in document-cloud platforms like Microsoft's 365 or Alphabet's Google Docs, or sales and management platforms like Salesforce and Workday, Workiva can tie all the data together. It connects and integrates with data storage applications; record-keeping applications; and a series of performance management, reporting, and accounting platforms.
The end result is visibility at all levels for managers. It allows them to compile critical reports for audit purposes or prepare filings to the Securities and Exchange Commission (SEC) directly from Workiva. In fact, Workiva provides templates for over 350 SEC form types, from quarterly reports to yearly reports to investor prospectuses.
But beyond standard compliance, Workiva has been focusing on its Environmental, Ethical, and Governance (ESG) reporting platform, where it sees a significant opportunity. Companies are more conscious than ever about their social responsibilities. In the European Union, for example, Workiva expects 50,000 organizations will be required to participate in mandatory ESG reporting. That market will only grow larger over time.
Steady growth with major potential
Workiva delivered $443 million in revenue during the 2021 full year, and its guidance suggests that figure could rise to $535 million in 2022, representing a 20.7% growth rate. While that's rather modest compared to other high-flying software technology companies, there's an interesting trend forming beneath the headline number.
Workiva breaks its customer base down into four categories based on annual expenditure. It turns out that the number of Workiva customers spending the highest amount of money each year is growing the fastest, by far.
In Q1 2022, Workiva grew its total customer base by 16% year over year, but as you move up the spending categories, growth gets significantly stronger. The number of customers falling under the highest category -- spending $300,000 or more -- soared by 42%.
Logically speaking, it makes sense that larger organizations with more employees, operating in more geographic areas, would benefit most from Workiva's platform. In turn, Workiva will do well over the long run if big spenders become a larger portion of its overall customer base. It would mean the company can operate at a higher level of scale, because it's more cost-effective to earn $1 million in revenue from five customers than earning $1 million from 50 customers.
Wall Street is on board
As mentioned earlier, Workiva is a relatively quiet stock that flies under the radar. Just eight Wall Street analysts cover it, but none of them recommend selling, and together they maintain a consensus overweight (bullish) rating.
The analysts have an average price target of $112.33, which represents a 28% upside from where Workiva trades today. But one investment firm, Berenberg, is far more bullish than the rest, betting the stock could soar by 65% to $145 per share.
But both of those price targets could be conservative in the long run. The market opportunity for ESG reporting software is set to more than triple to $1.48 billion annually by 2028, and Workiva is only just getting started in the segment. Capturing more market share in that industry would be a sizable complement to its steadily growing data aggregation software business.
Workiva is definitely a company of the future, delivering tools many companies don't even know they need just yet. With the stock down 49% from its all-time high, it might be the perfect time to load up for the long term.
