What happened
Shares of enterprise database software company Couchbase (BASE -0.12%) soared on Thursday even as the broader market was in a sell-off. The company just reported financial results for the first quarter of its fiscal 2023, which ended April 30, beating its previous guidance and raising expectations for the remainder of the year. As of 11:20 a.m. ET, Couchbase stock was up almost 15%.
So what
Couchbase's management had previously guided for Q1 revenue of $32.7 million at best and annual recurring revenue (ARR) of $138 million on the high end. Actual results surpassed this. In Q1, Couchbase generated revenue of $34.9 million, up 25% year over year. And ARR is now at $139.7 million, an increase of 27% from the same quarter last year.
There are multiple highlights from Couchbase's Q1 results. However, perhaps the most exciting is its remaining performance obligations (RPO). RPO represents business the company has already won but has yet to recognize as revenue. Couchbase's RPO as of Q1 is $169 million, up a whopping 68% year over year. This backlog suggests its business prospects remain strong.
Now what
I believe Q1 results were strong for Couchbase and the market is rightly recognizing that today. However, there are things that shareholders will want to watch. For example, Couchbase's services revenue is low margin and nearly doubled year over year in Q1. This is normal for businesses like this. But it did have a negative effect on the company's overall gross profit margin.
And speaking of profit margins, Couchbase had a relatively substantial quarterly net loss of nearly $20 million. That said, the company is well capitalized with $201 million in cash, equivalents, and short-term investments. Therefore, given its strong financial position, it's reasonable for investors to tolerate ongoing losses as long as it continues to grow. And given the big jump in RPO, I believe Couchbase is right on track.
