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Is a Surprise in Store for Workiva (WK) in Q2 Earnings?

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Workiva Inc. (WK - Free Report) is set to report second-quarter 2017 results on Aug 3. Although the company reported loss in each of the trailing four quarters, it has beaten the Zack Consensus Estimate on all occasions, resulting in an average positive surprise of 36.12%.

Last quarter, the company reported a loss of 14 cents per share, narrower than the Zacks Consensus Estimate of a loss of 25 cents. We note that the loss has also narrowed sequentially in the last three-quarters.

The improvement can be attributed to growing top-line, which has increased sequentially over the same time frame. In the last quarter, revenues also increased 16.5% year over year to $51.9 million and beat the Zacks Consensus Estimate of $51 million.

For second-quarter 2017, total revenue is expected to be in the range of $48.1–$48.6 million. Non-GAAP net loss is anticipated to be in the range of 20–21 cents per share.

Notably, shares of Workiva have gained 43.5% year to date, substantially outperforming the industry’s 17.4% rally. The outperformance can be attributed to improving results as well as increasing adoption of Workiva’s intuitive cloud platform, Wdesk.

Let's see how things are shaping up for this announcement.

Factors at Play

Wdesk continues to gain traction and is thus a key growth driver for the company. In the latest "Magic Quadrant for Cloud Financial Corporate Performance Management Solutions” report, market research firm Gartner puts Workiva in the “Leader” quadrant, which indicates  its strong growth potential.

Workiva enjoys steady demand for its product from state and local government and universities. In the first quarter, Wdesk was used to create and submit 75% of all Inline XBRL filings as well as 53% of all XBRL facts with the U.S. Securities and Exchange Commission (SEC). This reflects the company’s growing dominance in XBRL and Inline XBRL.

Moreover, the Wdesk platform has high growth opportunities in Enterprise Risk Management, which is evident from the significant increase in customers. The company also clinched significant customer wins in the Sarbanes-Oxley market. Key partnerships with the likes of Host Analytics, Armanino and FastPath are likely to boost its business and consequently its performance.

However, competition is intensifying in the cloud-based enterprise management and auditing software-as-a-service (SaaS) space with the presence of companies like Oracle (ORCL - Free Report) , SAP Business One, Adaptive Planning and OIKOS Treasury Suite. Additionally, investments in technology and talent will take time to contribute meaningfully to its top line in our view.

Workiva Inc. Price and EPS Surprise

Workiva Inc. Price and EPS Surprise | Workiva Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Workiva is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Workiva’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 31 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Workiva’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a couple of companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Vishay Intertechnology (VSH - Free Report) with an Earnings ESP of +6.06% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics (ARW - Free Report) with an Earnings ESP of +1.13% and a Zacks Rank #2.

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