Software provider Workiva (WK -1.79%) helps organizations aggregate their data for reporting purposes, and it's on the cusp of a major opportunity in the environmental, social, and governance (ESG) space. It's one of the latest technology companies to report its financial results for the quarter ended June 30, and it managed to beat its prior revenue forecast.
Workiva stock is trading 54% below its all-time high that was set during the tech frenzy in 2021. It was overvalued back then -- as were many enterprise software stocks -- but the company has grown significantly ever since, so it's starting to look like a great value.
The decline hasn't scared Wall Street, because the majority of analysts tracked by The Wall Street Journal have given Workiva stock the highest-possible buy rating. Here's why it might be a good idea to follow their lead.
Image source: Getty Images.
Workiva serves a growing corporate need
Companies are increasingly reliant on cloud-based applications to run their day-to-day operations. They offer several benefits, including the ability to reach a global customer base and hire remote workers, no matter where they might be located. But operating in the digital realm also creates challenges for managers who are tasked with tracking workflows across dozens of applications.
Workiva's platform integrates with all major productivity apps, systems of record, storage platforms, and more, and it pulls their data onto one dashboard to create a single source of truth. It saves managers from sifting through singular documents and software apps to piece data together manually, which is a major time saver. Plus, Workiva offers hundreds of ready-made templates so managers can rapidly compile reports for their executive team, or for regulators like the Securities and Exchange Commission (SEC).
But Workiva is focused on another major opportunity. Governments all over the world have introduced ESG legislation that requires companies to track their impact on the environment and societies in which they operate. That includes everything from their carbon footprint to the diversity of their workforce.
Workiva offers an end-to-end ESG solution that helps organizations create a framework, identify their targets, collect the necessary data, and compile audit-ready reports to meet regulatory requirements.
Global I.T. giant Cognizant was already using Workiva for SEC reporting when it discovered the ESG solution. Cognizant had already manually compiled and published some ESG reports, but management said Workiva's tool streamlined logistics and data collection from the organization's 12 teams. It saved a significant amount of time and allowed the organization to create reports with more detail and substance as a result.
Cognizant's head of ESG reporting, Aya Kiy, said if she could go back in time to start her ESG journey from scratch, her very first step would be to contact Workiva.
Workiva continues to attract high-spending customers
Workiva generated $177.5 million in revenue during the second quarter of 2024, which was a 15% increase from the year-ago period, and it was also above the high end of management's forecast of $176 million. The result was so strong it prompted the company to lift its full-year revenue guidance by $7 million, to $728 million.
Workiva had 6,147 customers at the end of Q2, which represented 4.9% growth from the same quarter last year. However, its top-spending customer cohorts grew significantly faster. The number of customers spending at least $150,000 per year jumped 23% to 1,015, and the number of customers spending at least $300,000 annually soared 31% to 356.
It highlights the importance of Workiva's software in larger, more complex organizations.
Workiva's growth is even more impressive when you consider the company has carefully managed its costs to improve its profitability. In the first six months of 2024, its operating expenses (including marketing) only grew by 5.1% year over year, resulting in a 40% reduction to the company's net loss, which came in at just $41.4 million for the period.
On a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation, Workiva actually generated net income of $21.8 million in the first half of 2024, which was a positive swing from the $5.4 million net loss it delivered a year ago.
Wall Street is bullish on Workiva stock
The Wall Street Journal tracks 11 analysts covering Workiva stock, and eight of them have given it the highest-possible buy rating. One more is in the overweight (bullish) camp, and two recommend holding. No analysts recommend selling.
As I mentioned at the top, Workiva stock is down 54% from its all-time high that was set in 2021. Considering the company has grown its revenue every year since then, its price-to-sales (P/S) ratio has declined to just 5.9 (from over 20 back then):
WK PS Ratio data by YCharts
In other words, Workiva stock is the cheapest it has been in around four years, and that might spell an opportunity for investors. Consulting firm PwC says the ESG software market in the U.S. and Europe alone was worth $9.8 billion in 2021, with a predicted 12% annual growth rate going forward. Based on Workiva's current revenue, it has barely scratched the surface of that addressable opportunity.
Workiva might fly under tech investors' radar because it isn't a red-hot artificial intelligence stock, but it appears to be a great value right now.
