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digibyte - Cornerstone OnDemand slips on Q2, outlook strong

Den Howlett Profile picture for user gonzodaddy August 7, 2014
Summary:
Cornerstone OnDemand missed on Q2 revenue and losses widened but the outlook remains strong

SUMMARY - Cornerstone OnDemand missed on Q2 revenue and losses widened but the outlook remains strong

Cornerstone OnDemand (CSOD) surprised the market by missing on Q2 revenue expectations. Even so, the performance was far from shoddy with revenue up to $61.5 million, up 39% year over year. The market was expecting something around $63.6 million. Of greater concern, losses widened largely due to operating expenses increasing 45.5% year over year.  In turn, operating margin was -21% in Q2 versus -18% this time last year. Having said that/ there are good signs.

Bookings are strong, up 44% year over year to $70 million. Other metrics included adding 1 million new users, bringing the total under CSOD management to 15.5 million.

Despite the miss, Jason Corsello, VP Corporate Development & Strategy is not unhappy:

The revenue miss can be attributed to deals late in the quarter and some larger deals that have longer services but looking ahead - we're crushing it on bookings and taking plenty of business from competitors like SAP. We also have some exciting initiatives coming that will propel us in the new year. The market dynamics are a huge tailwind for us. All the best of breed competitors are dead or dying and Workday remains a great channel for us.

My Take

  1. CSOD can't keep ramping losses, it needs to get that part of the operations under control.
  2. Consolidation in the market always favors those who are out front of the peloton, but CSOD has yet to find a CMO who can take advantage of macro market conditions. They've been looking for a while.
  3. There comes a point where momentum cannot be dependent upon the fortunes of a frenemy. Even so and despite the market punishing the stock, CSOD remains one of the higher priced SaaS players - that's got to speak well for 1. investor relations 2. market momentum where others are falling by the wayside.
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