Why HashiCorp (HCP) Stock Is Trading Lower Today
What Happened:
Shares of cloud infrastructure automation platform HashiCorp fell 15.2% in the morning session after the company reported third quarter results. Net revenue retention, an important metric that could give hints on customer satisfaction, customer willingness to increase spending, and even competition, fell and missed expectations. Additionally, RPO (remaining performance obligations, a leading indicator of revenue) came in below Wall Street's estimates. The company attributed these results to challenging market conditions, leading to increased deal scrutiny. Also, changes in customer purchasing behavior resulted in smaller land contracts as well as expansion and extension contracts.
Despite the challenges, Hashicorp's revenue outperformed during the quarter, leading to a slight upward revision of the full-year revenue guidance. While this provides reassurance, it's essential to note that the overall quarter was weaker, underscoring the difficulties in sales execution amid a more challenging business environment.
In response to these results, TD Cowen analyst Derrick Wood downgraded the stock's rating from Outperform (Buy) to Market Perform (Hold) and lowered the price target from $28 to $23. Wood expressed concerns about the limited growth visibility in the coming quarters, indicating a cautious stance on the stock.
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What is the market telling us:
HashiCorp's shares are very volatile and over the last year have had 30 moves greater than 5%. But moves this big are very rare even for HashiCorp and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 25.6% on the news that the company reported first quarter results that beat analysts' revenue, remaining performance obligations (RPO, a leading indicator of revenue), and earnings per share (EPS) estimates. Cash position improved with operating cash flow at nearly breakeven. However guidance was weak and a major driver of the stock move. Revenue guidance for the next quarter missed Consensus. The full-year guidance was lowered, which is never a good sign and could imply company-specific challenges or lack of visibility around near-term fundamentals. Non-GAAP operating loss guidance was roughly inline. Management highlighted a weaker macro environment and " pressure in the buying process." HashiCorp also announced cost-saving measures and a headcount reduction of about 8%. Overall, it was a fine quarter for the company but underwhelming guidance was the focus.
HashiCorp is down 22.5% since the beginning of the year, and at $20.10 per share it is trading 46.1% below its 52-week high of $37.28 from February 2023. Investors who bought $1,000 worth of HashiCorp's shares at the IPO in December 2021 would now be looking at an investment worth $235.88.
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