Seeking Alpha • Jul 20
WalkMe Prioritizes Larger Customer Size As Losses Worsen
WalkMe went public in June 2021, raising approximately $287 million in gross proceeds in an IPO.
The firm sells a software platform for enterprises to track and analyze online customer engagement activities.
WKME has grown revenue and gross profit, but is generating high and worsening operating losses, a distinct negative in the current market environment.
I'm on Hold for WKME until management can make a meaningful move toward operating breakeven.
A Quick Take On WalkMe
WalkMe (WKME) went public in June 2021, raising approximately $287 million in gross proceeds from an IPO that priced at $31.00 per share.
The firm enables enterprises to monitor and analyze online customer engagement via its SaaS Digital Adoption Platform.
Until WKME begins to make meaningful progress toward operating breakeven, in the current market environment, I don’t see a lot of upside to the stock.
I’m on Hold for WKME in the near term.
WalkMe Overview
Tel Aviv, Israel-based WalkMe was founded to develop a SaaS platform for enterprises to maximize their insight into and ability to increase customer engagement across various aspects of their online business.
Management is headed by co-founder and CEO Dan Adika, who was previously a software engineer at Hewlett-Packard Company and computer programmer in the IDF.
The company’s primary offerings include:
Unified visibility & insights
Consistent user experience
Self-service onboarding, feature engagement, support
WalkMe’s Market & Competition
According to a 2018 market research report by Research and Markets, the global customer experience management market is projected to grow to $21.3 billion by 2024.
This represents a forecast CAGR of 22% from 2018 to 2024.
The main driver for this expected growth is the increasing need for personalized customer experience.
Also, as IT infrastructure becomes more complex, organizations continue to seek more unified views into the online activities of their prospects and customers for decision-making purposes.
Major competitive or other industry participants include:
SAP
Microsoft
Oracle
Salesforce
Software for specific in-app guidance
WalkMe’s Recent Financial Performance
Total revenue by quarter has grown steadily over the past 5 quarters:
5 Quarter Total Revenue (Seeking Alpha)
Gross profit by quarter has followed roughly the same trajectory as that of total revenue:
5 Quarter Gross Profit (Seeking Alpha)
Selling, G&A expenses as a percentage of total revenue by quarter have remained quite high:
5 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
Operating losses by quarter have worsened markedly in recent quarters:
5 Quarter Operating Income (Seeking Alpha)
Earnings per share (Diluted) have also remained considerably negative in recent periods:
5 Quarter Earnings Per Share (Seeking Alpha)
In the past 12 months, WKME’s stock price has fallen 67.4 percent vs. the U.S. S&P 500 index’ drop of around 8.2 percent, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation And Other Metrics For WalkMe
Below is a table of relevant capitalization and valuation figures for the company:
Measure
Amount
Enterprise Value
$452,520,000
Market Capitalization
$762,250,000
Enterprise Value / Sales [TTM]
2.18
Price / Sales [TTM]
3.01
Revenue Growth Rate [TTM]
32.38%
Operating Cash Flow [TTM]
-$49,630,000
Earnings Per Share (Fully Diluted)
-$1.76
(Source - Seeking Alpha)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
WKME’s most recent GAAP Rule of 40 calculation was negative (11%) as of Q1 2022, so the firm needs significant improvement in this regard, per the table below:
GAAP Rule of 40
Calculation
Recent Rev. Growth %
32%
GAAP EBITDA %
-43%
Total
-11%
(Source - Seeking Alpha)
Commentary On WalkMe
In its last earnings call (Source - Seeking Alpha), covering Q1 2022’s results, management highlighted the growth in customer use of its Digital Adoption Platform, with average ARR per customer of $650,000.
The company recently launched its Digital Transformation Intelligence product, to enable organizations to monitor their digital transformation initiatives.
