Shares of HashiCorp (HCP -0.70%) fell 16.4% on Friday despite stronger-than-expected quarterly results from the cloud infrastructure software company. The market appears to be concerned with declining revenue retention trends from HashiCorp's existing customers.
On the former, HashiCorp's fiscal third-quarter (ended Oct. 31, 2023) revenue grew 17% year over year to $146.1 million, translating to adjusted (non-GAAP) net income of $5.6 million, or $0.03 per share (swinging from a $0.13 per-share loss in the same year-ago period). This was also HashiCorp's first-ever quarter with positive adjusted earnings. Analysts, on average, were expecting a per-share loss of $0.04 on revenue of $143 million.
Why HashiCorp's strong quarter just wasn't enough
HashiCorp CEO Dave McJannet called it a "solid" quarter in spite of continued macroeconomic headwinds.
Indeed, HashiCorp saw healthy 19.4% year-over-year growth in its number of customers, to 4,354. The number of customers generating at least $100,000 in annual recurring revenue (ARR) increased 15.4% to 877 and represented 89% of total revenue during the quarter. HashiCorp also saw adjusted free cash flow swing to positive $5.7 million, or 4% of revenue, after incurring negative free cash flow of $17.9 million in last year's third quarter.
At the same time, however, HashiCorp also revealed its trailing-12-month average net dollar retention rate contracted to 119% at the end of the quarter, down from 124% last quarter and 134% a year ago. While this indicates existing customers have spent an average of 19% more on HashiCorp's platform after their first year as clients, investors are concerned that the metric has steadily drifted lower over the past year.
"It's no secret that market conditions remain difficult," McJannet added during the subsequent earnings conference call with analysts. "We're just seeing smaller land-and-expand activity from our customers."
Company fourth-quarter forecast in line with analyst estimates
In the meantime, HashiCorp told investors to expect fiscal fourth-quarter revenue in the range of $148 million to $150 million, with adjusted earnings ranging from breakeven to $0.02 per share. Those ranges compare well to consensus estimates, which called for a loss of $0.01 per share on revenue of $149 million.
With looming concerns over the decelerating near-term growth, however, it's hardly surprising to see HashiCorp stock pulling back today.
