Workiva (WK, Financial) is a provider of a leading cloud platform for transparent reporting of financials, environmental, social and governance (ESG) data and SEC data. The stock recently caught my attention because Chuck Royce (Trades, Portfolio) was buying shares in the first quarter of 2022, during which the stock traded at an average price of $110 per share. Since then, the stock is down 36%.
The company was founded in 2008 and went public in 2014. It offers a valuable product to companies, enabling them to use connected data and automate reporting across finance, accounting, risk and compliance, resulting in strong growth in recent years.
Workiva provides a cloud platform where companies report their financials, ESG data and SEC data. Their total addressable market (TAM) has now grown to $25 billion, driven by the $13 billion accounting and finance market and $6 billion for the governance, risk and compliance (GRC) market.
Source: Workiva investor materials
Their platform brings together both structured and unstructured data from a variety of sources and makes it accessible via one end to end platform.
Workiva has grown their customer base from 2,468 in 2015 to over 4,146 by 2021. They have a prestigious customer base which includes Alphabet (GOOG, Financial)(GOOGL, Financial) and Delta Air Lines (DAL, Financial). Their revenue retention rate with add-ons has been greater than 111%, which means customers are staying with the product and increasing spending.
Workiva has a track record of exceeding revenue guidance and has grown revenues from $352 million in 2020 to $440 million in 2021, up 25% year over year. They generated a healthy gross profit of $339 million in 2021 and free cash flow of $41 million.
As a software company, Workiva operates with a high gross margin of 76%. They are operating at a loss of -$29 million, with a -6.6% operating margin, but this is partially due to their large reinvestments into both R&D ($115 million) and sales and marketing expenses.
In terms of valuation, the GF Value line, a unique intrinsic value calcualtion from GuruFocus, estimates Workiva is modestly undervalued at the current price.
Their price-sales ratio is 7.77, which is at the mid to low end of the range when compared to historic levels.
Workiva's software seems to be a “best in breed” offering for financial, ESG and SEC reporting, which helps companies to both visualize their data and remain compliant. Given these factors, I believe the stock's decline is not related to its business; instead, it has corrected down mainly due to the rising inflation and interest rate environment and thus appears to be undervalued relative to history.