This month, Workiva (WK 0.86%) joined hundreds of publicly traded companies in reporting its financial results for the second quarter of 2023. This reporting season is especially important for investors as they monitor how the corporate sector is navigating a challenging economic environment.
Workiva develops software to help businesses aggregate data for reporting purposes, and its Q2 results impressed investors as it beat expectations on the top and bottom lines. The company is focusing on a new opportunity that involves helping customers report on their environmental, social, and governance (ESG) impacts, and it could be incredibly lucrative in the long run.
The Wall Street Journal tracks 10 analysts covering Workiva stock, and those analysts are overwhelmingly bullish on its prospects. In fact, not one single analyst recommends selling. The stock is trading at a 52-week high following its Q2 report, but it remains 32% below its best-ever level set during the tech boom in 2021. Here's why investors should follow Wall Street's lead and buy it on the dip.
Workiva serves some of the world's largest companies
Operating a large organization has never been easy, but it has grown even more complex with modern technologies like cloud computing. Managers now have to supervise a workforce that could be spread across the globe and uses hundreds of online applications to complete tasks. Tracking progress and workflows can be incredibly challenging, especially when it comes time to report to the executive team or even to agencies like the Securities and Exchange Commission (SEC).
Managers are often left piecing information together from multiple sources, which can lead to unreliable reports, and that's the problem Workiva solves. Its platform aggregates data from multiple online sources by plugging into popular applications like Alphabet's Google Cloud, Microsoft Excel, Salesforce, and Snowflake (to name a few).
Workiva serves as a single source of truth for data stored across all of those applications, and managers can view it easily on one platform. From there, Workiva provides hundreds of ready-made templates to speed up the reporting process, which means managers can spend less time pushing paperwork and more time overseeing their teams.
Earlier this month, the company announced the integration of generative artificial intelligence (AI) into its platform. Customers will be able to choose any large language model or chatbot available through Microsoft Azure or Google Cloud, which can be used to boost productivity even further. AI can be used to create reports, offer suggestions, or even search for important information.
Workiva is the only company in the world that offers financial, compliance, and ESG reporting on one platform, which is especially convenient for large, complex organizations. It serves 5,860 businesses around the world, including tech giants like Alphabet and consumer products giants like Coca-Cola.
Workiva's highest-spending customer cohorts are growing the fastest
Workiva generated $155 million in revenue during Q2, which was an 18% year-over-year increase. It came in above the company's prior forecast, and it also beat Wall Street's expectations.
The result was driven by strong growth in the company's top-spending customer cohorts, which highlights a surge in demand from large, complex organizations. The number of customers spending at least $300,000 per year on Workiva's platform -- its top category -- jumped 40% year over year. That marked an acceleration compared to Q1, and there was also a growth acceleration among the over $100,000 and over $150,000 cohorts.
Data source: Workiva. ACV = Annual Contract Value.
Workiva also beat its forecast at the bottom line. It told investors it could lose between $26 million and $27 million in Q2, but its net loss wound up being just $20.9 million. The company is carefully managing costs as it continues to scale, and its overall Q2 financial results suggest it's finding a good balance between growth and moving toward profitability.
Wall Street is bullish on Workiva stock, and the ESG market could be the reason
Global governments continue to make progress toward requiring companies to report their impacts beyond their financial performance. For example, companies in the United Kingdom must include disclosures in their annual reports under the framework designed by the Task Force on Climate-Related Disclosures. This standard has also been adopted by most regions across the Asian Pacific.
Companies in the U.S. and Europe will be adhering to similar rules from 2024 and 2025. Overall, the goal is to have organizations report not just to shareholders, but to all stakeholders, on how their operations are affecting the environment and communities around them.
Workiva's ESG reporting software will play a key role in helping customers meet those new regulations. Global consulting firm PwC says the market for ESG reporting software was worth $10 billion in 2021, and with 12% annual growth predicted until 2026, it could be worth over $17 billion by that time. Considering Workiva is only a $5.8 billion company as of this writing, that's a big market for it to chase over the long term.
As I touched on at the top, The Wall Street Journal tracks 10 analysts covering Workiva stock. Of the group, seven have given it the highest-possible buy rating, with one in the overweight (bullish) camp and two recommending holding. Not a single analyst recommends selling.
That's a solid consensus, and considering the scale of Workiva's future opportunity, it shouldn't come as a surprise. There might be an opportunity for investors to pounce right now while the stock is still down 32% from its all-time high.
