Companies operate online more than ever before using cloud technology. It means they can access a global customer base, and their teams can collaborate no matter where in the world they're located, which supports an increase in remote work.
But those positives do come with challenges, and Workiva's (WK -0.36%) mission is to solve them. The company's platform unifies data and helps organizations with their reporting requirements in the growing digital sphere.
Workiva just reported its financial results for the first quarter of 2023. It beat its prior guidance, prompting an increase to its forecast for the rest of the year. Its stock remains 44% below its all-time high amid the broader sell-off in the technology sector, and here's why that's a dip worth buying.
Workiva solves modern-day business problems
When employment involved being in the office for most of the week, it was very easy for upper management within large organizations to monitor the teams beneath them. But in a digital world where many employees work remotely -- sometimes in an entirely different country -- visibility over workflows can become a challenge because teams might be working across dozens of different online applications.
That means when it's time to create reports for financial disclosures or simply to inform the executive team, managers are left piecing information together from different sources. That's one of the problems Workiva solves. It can be integrated with dozens of mainstream applications, from Alphabet's Google Cloud and Google Drive, to Microsoft's Excel and SharePoint.
Workiva can pull data from all those sources into one dashboard, which becomes the single source of truth for management. Then, the company provides thousands of plug-and-play reporting templates, which makes disclosures simple. They're especially useful for public companies that need to report to the Securities and Exchange Commission on a regular basis, which is a reason seven of America's eight largest banks use Workiva.
While Workiva's bread and butter is in financial and compliance-related reporting, it has expanded into a new vertical called ESG reporting, which stands for environmental, social, and governance. I'll touch on the size of this opportunity in a moment, but spoiler alert: It's big.
Workiva saw the fastest growth from its largest customers
The larger and more complex an organization is, the more likely it is to need Workiva's software. The company currently serves 5,754 customers in total, but its fastest-growing cohorts are those spending the most money.
At the end of Q1, Workiva had 1,363 customers with an annual contract value of at least $100,000, up 21% year over year. It had 746 customers spending a minimum of $150,000, an increase of 24%. And in its largest bracket, those spending at least $300,000 per year rose 33% to 247.
Data source: Workiva.
Workiva delivered $150.2 million in revenue in Q1 on the back of that customer growth, which was above its guidance. As a result, the company issued a small increase to its full-year 2023 revenue forecast, taking it from $626 million to $628 million at the top of the range.
Workiva also generated a smaller loss in Q1 than it had expected. Its bottom line was in the red to the tune of $46.2 million compared to its $52 million estimate. This is a key metric to watch because investors are currently shunning companies that aren't managing costs effectively in this difficult economic environment. Workiva estimates its net loss will shrink to $26 million in the second quarter.
Workiva's largest opportunity ever could be in ESG reporting
While the ESG segment is still new, major economic powers -- including the United States, Europe, and the United Kingdom -- are gradually mandating that large companies document their effect on the world around them, beyond their financial results for shareholders. That includes reporting carbon emissions, water usage, diversity in the workforce, and community effect, to name just a few metrics.
In 2024, more than 50,000 companies across Europe will have to report standardized ESG measures, and that number will only grow in the following years -- which is a major tailwind for Workiva. Its ESG platform allows customers to design their frameworks, collect the necessary data, and connect their teams so they can collaborate on reports.
According to an estimate by global consulting firm PwC, the market for ESG software was worth $10 billion in 2021 and is expected to grow by 12% annually through 2026, taking it to $17.6 billion by that point.
Viewed against Workiva's estimated $628 million in 2023 revenue and the company's current market capitalization of $4.4 billion, it becomes clear there's plenty of room for growth. With Workiva's stock price down 44% from its all-time high, now might be a great time for investors to buy ahead of the company's long-term opportunity.
