What a brutal six months it’s been for Upland Software. The stock has dropped 53.9% and now trades at $0.81, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Upland Software, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Upland Software Will Underperform?

Even though the stock has become cheaper, we don't have much confidence in Upland Software. Here are three reasons why UPLD doesn't excite us and a stock we'd rather own.

1. Declining Billings Reflect Product and Sales Weakness

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Upland Software’s billings came in at $47.81 million in Q1, and it averaged 25.1% year-on-year declines over the last four quarters. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Upland Software’s revenue to drop by 2.2%. While this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

3. Long Payback Periods Delay Returns

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.

Upland Software’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Upland Software’s products and its peers.

Final Judgment

Upland Software doesn’t pass our quality test. Following the recent decline, the stock trades at 0.1× forward price-to-sales (or $0.81 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.

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