Cornerstone OnDemand slightly misses Q4, still sets record

Profile picture for user gonzodaddy By Den Howlett February 11, 2014
Summary:
Despite recording record revenue in Q4 2013 of $54.9 million, Cornerstone OnDemand slightly missed forecasts. Even so, the outlook is bright.

CSOD logo
Cornerstone OnDemand, an independent talent management and recruitment vendor has announced record Q4 revenue of $54.9 million (full year $185.1 million) but with a loss of $10.8 million ($40.4 million for the full year.) Eyar over year growth for the quarter was 51 percent and 57 percent for the full year.

Even so, revenue marginally missed estimates by $0.18 million and, has become common these days, the stock price was hammered, falling back as much as 7.5 percent until settling down at a 2.24 percent retreat in after hours trading. I doubt the company's management is overly concerned since it still holds a total market cap of $3 billion.

 

Of greater interest is the fact Cornerstone now counts 1,600 customers and 14 million users, reflecting the fact that HR related solutions of this kind reach deep inside the customer accounts they win.

Speaking of wins, on the earnings call, Adam Miller, CEO noted that the company had wins at a broad set of well known brands such as Peugeot, Grant Thornton, IKEA, Subaru, Nissan, Roche, BBVA and Phillips Electronics.

"The reality is, we did more enterprise business last year than ever before and improved our enterprise win rates at the same time...in the mid-market as expected, Cornerstone emerged as the clear vendor of choice...[on pricing in the mid-market] we saw a sharp rise in selling prices which increased 30 percent compared to 2012."

It is also interesting to note that the company reports dollar retention rates at 95 percent. This is among the highest numbers we see in any enterprise segment but is not surprising given the current focus across all industries on hiring and retaining the best talent.

I have long held the view that long term success for the new breed of vendor comes from early verticalisation. This allows vendors to tailor solutions according to individual business segment needs. Here, Miller announced a strengthening of the vertical market sales teams which he sees as a key driver for 2014 and beyond. Of even greater interest is the fact that in the enterprise, almost all the company's business is coming from replacement of on-premise systems.

On yet another data point, Miller believes that as the company goes down market, the company can achieve 2-4x price points compared to those achievable in large enterprise deals. Right now, it sees average selling prices across the product range around $20 per user per annum, with large enterprise deals coming in at lower-mid teens on a blended sale basis.

Looking forward, the company is expecting 2014 to earn revenues in the $267-270 million range. At the midpoint, this is a conservative 45 percent growth rate over 2013 although first quarter is pegged at 51 percent growth. Of greater cheer for those concerned with Cornerstone's continuing losses, the company expects to narrow to a loss of $13 million.

On the competitive front, Miller didn't exactly take shots at SuccessFactors but reiterated his past predictions that

"...there will be a mass exodus, late February, early March"

This is not as bold as it may sound. Significant number of key SuccessFactors employees are expected to cash out as their stock vesting period runs out.