Appian (APPN), a software-as-a-service (SaaS) company, reached $43 this past June. Today, the stock is at $23 following what appears to be a market correction that might not be over. Is this the time to buy a tech growth stock like Appian? Should APPN holders dump their shares and sit on the sidelines until the market stabilizes? Let’s take a closer look.
Headquartered in Reston, Virginia, Appian is leading the way in the transition to low-code software development. The company had been on a nice roll up until September when shares were priced just under $40. Appian, a SaaS specialist, is widely considered a development pioneer that has made life better for countless businesses and everyday people. The company helps businesses develop apps, software and websites through a low-code technique. Clients that use the app platform subscribe based on the number of app end users, allowing for a scalable solution that suits businesses of nearly every size, industry and niche.
It is particularly interesting to learn Appian’s founder and CEO Matt Calkins owns slightly more than 45% of outstanding shares. Calkins controls half the voting rights to boot. However, for all the good vibes surrounding this SaaS leader, there is some negative of note. Appian is still in the red even though it has been publicly traded since the spring of 2017. Savvy investors understand the company’s current lack of profitability and volatility is all a part of the gradual growth process. Intelligent investors never lose sight of the fact that Amazon (AMZN) lost money for years before turning a profit.
Appian has elected to use a portion of its revenue to expand its successful professional services wing. This appears to be a prudent move as this division is noted for its rapid conversion to revenue. Company executives are well aware of the fact that subscription services require more time to bring in revenue though this revenue is characterized by temptingly lofty profit margins. Appian’s current strategy is to continue reinvesting revenue in the business, catalyze growth and expand its digital footprint. The business is currently losing money as nearly 20% of sales are reinvested in the company through research and development. All in all, more than $50 million has been spent on advertising in 2018 alone. When analyzed with these figures in mind, it is easy to see why Appian is in the red at the moment. However, if Appian plays its cards right, double-digit growth is a possibility.
Appian executives expect quarterly revenue to spike toward the $50 million mark, equaling a growth rate of 12% on a year-over-year basis. Company leaders also forecast subscription revenue to approach the $28 million mark, representing a 35% growth rate. Unfortunately, total revenue will likely slow. All in all, the adjusted net loss per share should hover around 15-20 cents for the next few quarters. One of Appian’s many silver linings is its gross margins are around 60%.
If Appian slides on down toward the $20 mark, it is worth strong consideration. SaaS, websites and apps of every sort will continue to saturate workplaces, homes and elsewhere as web-enabled mobile devices become the social and professional norm. Appian is in prime position to help businesses create those “killer apps” customers just have to have. Part of the reason why Appian is so successful is its presentation and focus on user experience design. The company’s visual tools resemble a flow chart as opposed to the inferior line-by-line coding. Its service is designed so those with minimal understanding of coding can make applications with surprising ease. This feat is worthy of appreciation as high-quality software engineers are few and far between.
Don’t let Appian’s current losses scare you away from this growth prospect. If your portfolio is in need of a long-term play or if you think diversifying in the tech sector will help balance out your holdings, Appian is worth a look. The bottom line is apps, websites and software will prove essential to business in the short-term and long-term. Businesses require each of these vehicles to connect with prospective clients, gain critically important exposure and ultimately solve problems.
This industry will expand as we continue our rapid society-wide leap to a high-tech reality dominated by screens of every sort. It is sweet music to the ears of Appian investors. Look for Appian to bounce back toward the end of the year or at the very latest, at the beginning of 2019.
Regards,
Ethan Warrick
Editor
Wealth Authority
