Cloud-based tax solutions provider Avalara (AVLR, Financial) came out with a beat in its third quarter results. The Seattle-based company has consistently beat earnings expectations this year. Avalara also projects overall reduction in losses for this fiscal year.
For the quarter ended Sept. 30, Avalara reported an even higher revenue growth of 41% this year compared to 26% the previous year. The company reported a 1 cent per share loss compared to consensus estimates of a 9 cents per share loss. Avalara expects to further reduce its losses from $45 million in company defined operating losses last fiscal year to somewhere between $13 and $14 million this fiscal year.
Wall Street loved this performance and outlook, which has sent Avalara share prices 11% higher post earnings announcement.
Avalara is in the business of helping its customers be tax compliant. The company derives most of its business from subscriptions, and most of its revenue is generated in the United States. Avalara grew its core customers by 32% to 11,240 in the quarter compared to 5% growth in the year-ago quarter. In addition, its customer retention rate rose to 113% from 105% last year.
Avalara remains rich in cash with no debt obligations. It had $447 million in cash as of the end of September, with a book value of $464 million.
Twelve Wall Street analysts have set a buy recommendation for Avalara with none rating it either a hold or a sell. Wall Street’s average price target of $100 a share is 30% higher than where the stock price is today.
Avalara now trades at 15 times its sales compared to its last year’s average of 8 times. At higher multiples, Avalara still trades at a discount compared to its peers. Cloud-based platforms like SmartSheet (SMAR, Financial) and Anaplan (PLAN, Financial) trade at 20 times their corresponding sales.
Strong revenue growth, sticky customer relationships and a clean balance sheet are just some strong qualities Avalara has exhibited since it went public in 2018. At its current rate, Avalara seems to be set to break even or turn to profits by the middle of next year.
Disclosure: No shares in any of the companies mentioned.
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