The term “experience management” refers to the process of managing a customer’s interaction with a business or product. Its purpose is to remove the disconnect between what customers expect and what they receive. Customers want to feel valued and their needs met, but businesses often don’t meet these expectations. Qualtrics International (NASDAQ: XM) is a leader in this industry and is strengthening its position by acquiring and launching new applications that fit into its product portfolio.
Global customer experience management is expected to grow at an exceptional 17.5% compound annual growth rate and reach $ 27.12 billion in 2028, from $ 27.12 billion in 2021. Many think that following its separation from SAP (NYSE: SAP), XM’s growth will be hampered by product integration challenges and intense competition. However, its Q4 results show exceptional growth, with a growing customer base and 300% year on year increasing number of integrations. Improving XM’s worldwide presence and improving operations in the Healthcare industry makes the company relatively inexpensive compared to its own history.
Coordinating the Four Key Organizational Experiences
Management identified four key organizational experiences that enable their XM platform to improve:
Creating value for businesses requires them to understand the needs of their customers, enabling them to provide quality service. According to one study, customers ranked experience as the first most important factor in their purchasing decisions, before price and product quality. According to management, XM currently has a $ 60 billion addressable market. XM is on the right track to take advantage of that tremendous opportunity by enhancing its ecosystem and presence in all industries, while also significantly increasing its international revenue.
Recovering From ‘Great Resignation’
The leadership expects the rise following a wave of resignations and is optimistic about significant acquisitions across all industries, particularly the travel industry. Management even provided an optimistic outlook for its topline growing 31% YoY in its 2022 calendar year. XM is already seeing fruitful results from its acquisition of Clarabridge and one of these is its positive contribution to subscription revenue. So far, XM has generated total revenue of $ 1,075.7 million, up 40.88% from its $ 763.5 million in 2020. The $ 871 million is from subscription revenue that has seen outstanding growth as well as 51% YoY, which its $ 20 million is from Clarabridge. In 2021, its calculated charges will reach $ 1,293 million, representing an exceptional growth rate of 47% annually. XM’s calculated charges from Clarabridge will reach $ 55 million in 2021, contributing a positive result to its overall profitability. Clarabridge’s growth is just the beginning of XM’s expanding portfolio.
A Preview of the Full Suite of XM Offers
XM has launched a new range of products called XM Discover, which the company believes will revolutionize the industry. According to management, the additions will enhance data collection and analyze it using artificial intelligence and machine learning to enhance interaction with the four key organizational experiences. XM enjoys a growing large customer and Net retention rate as shown in the image below.
Despite the costly acquisition, XM has improved its balance. It has produced a record figure for its current ratio of 1.57x and remains a solid 0.13x debt to equity ratio. XM, in my opinion, remains a solid company despite its history of diluting its own components, as it has no significant long -term debt on its balance sheet.
Somewhat Valued Compared to Peers
Anaplan, Inc. (PLAN), Dynatrace, Inc. (DT), Zendesk, Inc. (ZEN), HubSpot, Inc. (HUBS), Oracle Corporation (ORCL), Adobe Inc. (ADBE)
XM’s following P/S ratio of 15.09x is cheaper compared to its P/S ratio of 30.7x on its first trading day following its separation from SAP. However, as shown in the photo above, it is relatively expensive compared to its peer, the ORCL, which lowers the overall average of the peers to 12.91x. Oracle’s CX Cloud and the Webex Experience Cisco (NASDAQ: CSCO), which has a following P/S ratio of 4.51x better valuation than XM so far, gives investors safer options in the customer experience management industry.
However, as an industry leader, XM benefits from the growing global customer experience management market, which is expected to reach $ 27.12 billion in 2028, which will grow at a 17.5% compound annual growth rate between 2021 and 2028. While considering the historical P /S of 30.7x, in my opinion, an implied 20.78x P /S with an estimated revenue of $ 2,000 million in 2026 and a 10% discount rate, provides a conservative benchmark to arrive at a fair price of $ 45.23.
Challenging the $ 31 Zone
XM is close to its strong psychological resistance zone of $ 31, indicating a higher chance of being rejected by the market. If there is going to be a pullback, over $ 22 or its 52-Week Low level is a good place to get into a potential support. Examining its MACD indicator, we can see improving sentiment and potential bullish crossover in the next trading week.
Final Thought: Follow the Insider
XM enjoys a very positive insider trading, as shown in the photo above. In my opinion, it rejects a bearish sentiment from slowing its gross margin.
Just by looking at the trend, it appears that XM’s growth seems to be slowing, but management believes this is a temporary blip and the decline is entirely due to the acquisition of Clarabridge. According to management, they recognized all the expenses but they did not recognize all of its revenue, so it will definitely affect performance in 2021. In addition, improving XM’s operations across all industries especially in the Healthcare sector is one of the main reasons for its growth. Furthermore is their growing presence around the world, as illustrated in the photo below.
Finally, XM has seen tremendous growth in its mergers and partnerships as well as its partners Salesforce, Service Todayat Zendesk, which tripled last year to 275 mergers. An enhanced XM is greater than the risk of overestimation. Buy at its pullback potential.
Thanks for reading!