Couchbase, Inc. (NASDAQ: BASE) provides an enterprise-class, multi-cloud NoSQL (not only SQL) database for enterprise applications. Its platform provides a high-performance, flexible, and scalable modern database that runs across the data center and any cloud.
The company completed its listing on July 22, 2021, and finished its first fiscal year as a public company with solid results.
Despite reporting better-than-expected fourth-quarter Fiscal 2022 results, the company’s shares plunged 13% during the extended trading session on March 9 due to weak guidance for fiscal 2023.
On March 11, the company’s shares fell 5.7%, closing at $15.82 amid a broader market sell-off due to the ongoing Russia-Ukraine war. Since its listing, BASE stock has lost almost 48% in value.
Following the Q4 results, analysts on the Street lowered their price targets on the stock in tandem with conservative guidance.
Robert W. Baird Analyst Robert Oliver maintained his Buy rating on the BASE stock but also lowered the price target from $50 to $35, which implies a humongous 121.2% upside potential.
Oliver’s price target of $35 is based on 10 times Couchbase’s Price/Sales (P/S) multiple, which implies a premium compared to its peer’s median (8 times P/S).
The analyst notes that BASE operates in a large total available market (TAM) with early-stage opportunities in NoSQL. He forecasts the TAM ($43 billion in 2020) to grow at a low double digit compound annual growth rate (CAGR) through 2024. He also believes in the company’s strong management capabilities coupled with a strong technology position and premier clientele.
Let’s dive deeper into the company’s latest quarterly performance.
Latest Financials
In the fourth quarter, Couchbase’s revenue of $35.06 million exceeded the Street’s estimates of $34 million and grew 19% year-over-year. For Software-as-a-Service (SaaS) companies, subscription fees form a major chunk of revenue. Couchbase’s subscription revenue for Q4 advanced 17% year-over-year to $32.8 million.
Similarly, its Q4 non-GAAP loss of $0.22 per share came in 4 cents better than the analysts’ estimated loss of $0.26 per share. The figure was even better than Q4FY21’s reported non-GAAP loss of $1.67 per share.
In addition to that, for FY22, Couchbase’s revenue leaped 20% annually to $123.5 million, and a non-GAAP loss of $1.96 per share was better than the prior-year loss of $6.85 per share. In FY22, its subscription revenue jumped 20% to $116.3 million.
Important Metrics
For SaaS companies, metrics such as Annualized recurring revenue (ARR) and Remaining performance obligations (RPO) serve as leading indicators for further growth and acceleration.
Couchbase defines ARR as “the annualized recurring revenue that it would contractually receive from customers in the month ending 12 months following the date of reporting.”
As of January 29, 2022, Couchbase’s ARR stood at $132.9 million, which grew 23% compared to the prior-year period. This included a record new ARR of $10.6 million. The company assumes that the ARRs will be renewed automatically unless otherwise specified by clients, which means that the company will continue to earn at least the same amount of revenue for the coming period.
Additionally, the company’s RPO at quarter-end stood at $161.6 million growing, 58% year-over-year. The RPO represents the amount of contracted revenue that will be incurred in the future, including the next twelve months and beyond.
FY23 Guidance
Notably, Couchbase’s revenue guidance for fiscal 2023 fell short of analyst estimates. While the company guided for FY23 revenue to fall in the range of $146.5 to $147.5 million, analysts on the Street guided for optimistically higher revenue of $151.4 million.
Meanwhile, the non-GAAP operating loss forecast of between $57.2 million and $56.2 million was wider than consensus estimates of $50 million.
However, the company’s FY23 ARR guidance of between $160 million and $164 million came in better than the consensus estimates of $159.3 million.
The company even gave near-term guidance for Q1FY23 revenue, which is projected in the range of $32.5 million to $32.7 million, and an ARR expectation of between $136 million and $138 million, both of which came in marginally better than consensus estimates. However, non-GAAP operating loss expectations of $16.8 million to $16.6 million came in higher than estimates.
Turning to analyst Oliver’s view of the guidance, he noted that Couchbase reported mixed guidance for FY23 but views “BASE as well-positioned for the early-stage opportunity in NoSQL and a compelling name for small-cap growth investors.”
The analyst is optimistic about its latest Capella DBaaS offering, which gives clients the flexibility of both on-demand and annual credit models in a single contract. The company expects the Capella offering “to continue meaningfully to 2023”, and has even signed its first seven-figure customer for the same.
Notably, the NoSQL database segment is relatively newer, which empowers developers with vast flexibility to store huge amounts of unstructured data versus SQL databases, which typically store data in structured rows and columns. As per Gartner, this new segment represents roughly $8 billion of TAM, or just 1/7th of the total TAM.
According to Oliver, the caveat to this foray lies in the fact that many companies have invested heavily in traditional SQL databases, and may take time or even hesitate to migrate to new NoSQL technologies.
Turning to other analysts from the Street, the BASE stock gets a Moderate Buy consensus rating based on 5 Buys and 2 Holds. The average Couchbase price target of $30.86 implies 95.1% upside potential to current levels, at the time of writing.
Conclusion
Although Couchbase operates in a relatively new NoSQL segment, the benefits of the technology outweigh the near-term challenges, compared to legacy database management platforms. Even with conservative company guidance and lowered estimates, the stock still holds huge upside potential for the forward twelve months, making it a compelling investing opportunity.
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