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Why Appian Stock Was Pulling Back Today

What happened

Shares of Appian (NASDAQ: APPN) were sliding today after the cloud-based provider of low-code application software reported fourth-quarter earnings last night. The company topped expectations in the fourth quarter, but its bottom-line guidance for 2021 was below the analyst consensus.

As a result, the stock was down 4.1% as of 12:37 p.m. EST on Friday after falling as much as 11.3% earlier in the session.

The Appian logo on a dark background

Image source: Appian.

So what

Appian delivered strong results in the quarter, topping both its own guidance and analyst estimates. Cloud subscription revenue, the company's most important metric, rose 40% to $36.9 million, and overall revenue increased 19% to $81.6 million, ahead of expectations at $74 million.

The company posted a 119% net retention rate, toward the high end of its target of 110% to 120%, showing that revenue from its existing cloud customer base increased 19% in the quarter. And its gross renewal rate was 99% in December, up from 96% a year ago, showing that essentially all of Appian's customers from 2019 stuck with it last year, a promising sign for customer satisfaction.

Subscription-based adjusted gross margin expanded from 89% to 90%, and its adjusted EBITDA loss narrowed from $8.2 million to $3.7 million as the company saved in areas like travel and entertainment. On the bottom line, it finished the period with a per-share loss of $0.03, easily beating the consensus for a loss of $0.17.

CEO Matt Calkins said: "Low-code emerged in 2020 as a successful way for organizations to remain nimble in the face of change. Appian is leading this market because our low-code platform is more than 10x faster, our partner ecosystem is growing, and our customers are happy."

Now what

Coming into the earnings report, Appian stock had nearly tripled since its last reported earnings in November, so high expectations are now baked into the cloud stock. Management tends to offer conservative guidance, and that seemed to disappoint the market.

For the full year, Appian sees revenue of $353 million to $355 million, better than the consensus at $341.5 million, but its per-share loss forecast of $0.60 to $0.64 was worse than the consensus at a $0.43 loss, a reflection of increased investments to seize the opportunity in low code.

While the sell-off in the stock may be disappointing, given its surge over the last few months, investors should be pleased that the company has passed its first test at a much higher valuation.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Appian. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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