BASE - Checking Into Couchbase Inc.

2023-12-08 16:20:33 ET

Summary

• Today, we take our first look at tech concern Couchbase, Inc., whose business is based on subscription as a service or SaaS.
• The company is seeing solid and consistent sales growth and just reported Q3 results that beat expectations earlier this week.
• Where will the stock go from here?  An analysis follows in the paragraphs below.

The way Americans tend to buy things: A person who has $20 will buy something for $40 if it's marked down from $100 ."? Clifford Cohen.

Today, we put Couchbase, Inc. ( BASE ) in the spotlight for the first time. The company just reported its Q3 results . The company beat both top and bottom line expectations. We take a look at this subscription-based tech concern in the analysis below.

Company Overview:

Couchbase is based in Santa Clara, CA, and provides a database for enterprise applications. It has several key products on the market including Couchbase Capella, an automated and secure Database-as-a-Service that helps in database management by deploying, managing, and operating Couchbase Server across cloud environments. The company's offerings operate across public, private, and hybrid cloud environments within a single subscription service-based platform.

Almost all of Couchbase revenues come from subscription services it should be noted. The stock currently trades just south of twenty bucks a share and sports an approximate $920 million market capitalization. The company's fiscal year starts on February 1st.

Third Quarter Results:

The company posted its Q3 numbers on Wednesday. Couchbase had a non-GAAP loss of eight cents a share, which was a dime a share above expectations. Overall revenues grew nearly 19% on a year-over-year basis to $45.8 million, which was more than $2 million north of the consensus estimate. Revenues from subscription services came in at $44 million, a 23% from 3Q2023.

Annual recurring revenue, or ARR, rose 24% to $188.7 million as well. Gross margins rose 140bps to 88.8%. However, remaining performance obligations, or RPO were only up 3% year-over-year to $164.4 million. The leadership provided the following forward guidance for the fourth quarter and full year of fiscal 2024.

Analyst Commentary & Balance Sheet:

The analyst firm community has mixed views on Couchbase's prospects at the moment. Since third quarter results were posted, five analyst firms including Stifel Nicolaus and Oppenheimer have reissued Buy ratings on the stock. Three of these have upward price target revisions. Price targets proffered range from $23 to $26 a share. Goldman Sachs ($20 price target), Wedbush ($23 price target), and Morgan Stanley ($21 price target) maintained their Hold/Neutral ratings on the stock.

Just under three percent of the outstanding float in the shares are currently held short. Several insiders have been frequent, consistent but generally smallish sellers of the shares throughout 2023. Of note, two beneficial owners of the stock have disposed of north of $25 million worth of equity so far in the second half of this year. Couchbase exited the third quarter with approximately $156 million worth of cash and marketable securities on its balance sheet . The company had a negative free cash flow of $13.8 million in its recently completed quarter, down from a negative $16.3 million in the same period a year ago. Couchbase carries no long-term debt.

Verdict:

Couchbase posted a loss of 90 cents a share in FY2023 on just less than $155 million worth of revenues. The current analyst firm consensus has losses falling to 69 cents a share in FY2024 on $176 million of sales and to just 50 cents a share in FY2024 as sales rise to $204 million.

Couchbase is delivering some revenue growth that is projected to grow in the mid-teens over the next couple of years. Losses are also projected to come down, and the company has a debt-free balance sheet. However, Couchbase, Inc.'s profitability seems far off in the future, and the quarterly cash burn rate is not coming down as much as I would like to see. The stock also trades at six times trailing sales, which hardly seems compelling.

Finally, as a recent article on Seeking Alpha pointed out, Couchbase's platform might not be as advantageously positioned for the AI revolution as some competitors. Therefore, I am passing on making any investment recommendations around BASE at this time.

We owe some of our successes to people who did not want to help us more than we do to those who have helped us ."? Mokokoma Mokhonoana.

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