Workiva’s stock price has taken a beating over the past six months, shedding 47.7% of its value and falling to $45.75 per share. This might have investors contemplating their next move.
Following the pullback, is now an opportune time to buy WK? Find out in our full research report, it’s free.
Why Do Investors Watch WK Stock?
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Three Positive Attributes:
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Workiva’s ARR punched in at $901.4 million in Q1, and over the last four quarters, its year-on-year growth averaged 22.1%. This performance was impressive and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Workiva a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Elite Gross Margin Powers Best-In-Class Business Model
What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
Workiva’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an excellent 79.4% gross margin over the last year. That means Workiva only paid its providers $20.60 for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Workiva has seen gross margins improve by 3.4 percentage points over the last 2 years, which is very good in the software space.
3. Customer Acquisition Costs Are Recovered Quickly
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Workiva is efficient at acquiring new customers, and its CAC payback period checked in at 39.8 months this quarter. The company’s relatively fast recovery of its customer acquisition costs gives it the option to accelerate growth by increasing its sales and marketing investments.
Final Judgment
Workiva is an interesting business with potential. After the recent drawdown, the stock trades at 2.6× forward price-to-sales (or $45.75 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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