What happened
Shares of HashiCorp (HCP 0.43%) fell 13.6% on Friday as of 12:53 p.m. ET, following last night's earnings report. Although the cloud automation software company beat analyst expectations for both revenue and net loss per share, it wasn't enough to overcome difficult sentiment toward high-growth software stocks generally. Full-year guidance for decelerating revenue growth and significant operating losses likely added to concerns.
So what
In the first quarter, HashiCorp grew revenue 51% to $100.9 million, with a net loss per share of $0.43. Both figures handily beat expectations, and other key performance indicators like the net retention rate came in at a solid 133%.
So what exactly was the problem? It's hard to say. Management actually raised its guidance relative to the prior quarter. For the full year, HashiCorp now expects between $422 million and $433 million in revenue, and an adjusted (non-GAAP) operating loss between $224 million and $216 million. That guidance was actually up from the prior quarter's full-year guidance of $413 million to $423 million in revenue and an operating loss of $239 million to $231 million.
So, the harsh response today is a bit of a head-scratcher. Friday was of course a very bad day for high-growth technology stocks still printing hefty losses. These stocks declined as the May jobs report came in hotter than expected, fueling speculation that the Federal Reserve may have to be more aggressive with rate hikes to get inflation down.
HashiCorp trades around 14.5 times this year's sales estimates, which is still a high valuation for its growth rate, and investors don't seem interested in any company that's losing hundreds of millions on the bottom line in this higher-rate environment. Moreover, even the upward-revised revenue guidance shows just 33% growth over the prior year, a marked deceleration from the 51% growth last quarter. Still, it makes one wonder why HashiCorp came into the report higher than it is now.
Image source: Getty Images.
Now what
When fears over inflation and rising rates come to the fore, no one seems to want to gamble on growth stocks for companies that are still printing hefty net losses, as was the case today. But Hashi's outsize drop likely reflects the realization that its revenue deceleration might not be enough to justify its valuation. This is actually happening to a lot of software-as-a-service (SaaS) stocks at the moment as they report.
On the positive side, HashiCorp did go public at $80 back in December 2021, raising money at a price more than 100% higher than today's stock price, just before the tech market crashed. As a result, Hashi has a very strong balance sheet, with $1.34 billion and no debt, making up a significant part of its $6.2 billion market cap.
HashiCorp is new to the markets and unproven; however, given its solid balance sheet and exposure to the cloud, it has made its way onto my watch list, should it fall far enough. It's a name for software investors to investigate.
