It’s been a bumpy ride for Appian, the cloud computing specialist listed on the NASDAQ with the ticker symbol APPN(NASDAQ: APPN). Like many in the software sector, the company faced a sharp decline, with shares plummeting by a staggering 84% from their early 2021 peak. However, Appian experienced a sudden uptick as its shares jumped over 12% following the release of its fourth-quarter earnings report. The impressive results on both the top and bottom lines, coupled with the unveiling of new initiatives in artificial intelligence (AI) and “data fabric,” provided a much-needed boost. But does this signify a good buy for investors? Let’s explore further.
A Glimpse at the Latest Results
In the fourth quarter, Appian reported a 26% growth in cloud revenue, reaching $83.1 million. This propelled the overall revenue up by 16% to $145.3 million, exceeding estimates of $140.9 million. Notably, it surprised analysts with an adjusted profit per share of $0.06, a significant improvement from the consensus estimate of a $0.24 loss and the actual loss of $0.28 in the same quarter the previous year.
Appian’s ability to curtail operating costs while growing the business is evident, with the company anticipating a cross into break-even for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. During the fourth quarter, Appian recorded an EBITDA profit of $1 million, a promising achievement that resonates with investors.
Following the stock’s rapid surge, there is palpable enthusiasm among investors regarding the substantial revenue growth, reduced losses, and increased exposure to AI.
Appian’s Foray into AI
Appian’s dedication to low-code data technology, a simplistic means of connecting to data from various sources, is resonating with some investors. Unlike conventional data management approaches, Appian’s data fabric doesn’t store customers’ data, giving them more control. Instead, it acts as a “virtual database,” according to CEO Matt Calkins. An exciting revelation from Calkins is that data fabric, along with the AI feature, is now a major focus for the company. He states, “It’s one of the best features we’ve ever written, and I think customers understand that, and they’re using it as if they know that.”
Data fabric notably forms a pivotal part of the company’s AI strategy, emphasizing what Calkins terms “private AI.” This approach enables customers to own their data while allowing Appian to provide the tools necessary to access and comprehend it – including the data fabric. During the recent earnings call, Calkins outlined the expected revenue impact of these new features, stating, “So we are absolutely expecting that these features will drive a revenue differentiation. Not just volume, not just retention, not just a competitive advantage, but also tagging them with revenue.”
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Is Appian Stock a Buy?
Appian’s remarkable progress on the bottom line in the last quarter is undeniably notable. The company achieved an adjusted profit, with both the cost of revenue and operating expenses registering a year-over-year decline, indicating enhanced cost management alongside robust growth.
In addition, the fourth quarter witnessed the most rapid net retention rate growth in several quarters at 119%, signifying that existing customers augmented their spending with Appian by 19% year over year, surpassing prior rates. Appian’s full-year projections anticipate cloud revenue growth of 20% and total revenue growth of 13%, alongside a projected adjusted EBITDA loss of $23 million to $25 million. Management envisions EBITDA turning positive by 2025.
With an Investor Day conference scheduled for April, featuring updates on AI and data fabric, as teased by Calkins, the event could potentially offer a further boost to the stock. Investors’ eagerness to embrace AI opportunities is clear. If Appian effectively leverages its AI products for substantial revenue growth, the stock presents significant upside potential.
So, should you invest $1,000 in Appian right now? It’s a valid question to ponder. However, one should consider this: The Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks for investors to buy now, and notably, Appian didn’t make the cut. The 10 stocks that received the vote of confidence are positioned to deliver remarkable returns in the years ahead. The Stock Advisor service ensures investors with a clear path for success, offering guidance on portfolio construction and regular updates from analysts, along with two fresh stock picks monthly. Evidently, the Stock Advisor service has significantly outperformed the S&P 500 since 2002*.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in 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.
