Experience management platform provider Qualtrics International Inc. (XM - Get Rating) had an impressive IPO in January 2021 following its spin-off from its parent company SAP SE (SAP). Its performance was driven primarily by increased demand for cloud-based software applications. However, the stock is up only 0.2% over the past month and is currently trading 40.9% below its $ 57.28 all-time high.

In-part because investors are now shifting their focus to cyclical stocks amid the anticipated economic recovery, XM’s performance has been sluggish. Also, XM faces intense competition from established companies in the cloud-based software space and its financials don’t seem promising. So, we think it’s wise to avoid the stock now.

Click here to check out our Software Industry Report for 2021

Here are the factors that we think could influence XM’s performance in the coming months:

Strategic Alliances

This month, XM announced a new strategic partnership between Qualtrics Japan and International Business Machines Corporation’s (IBM) IBM Japan. The partnership is intended to help organizations rapidly access and realize the full value of XM’s experience management platform. Last month, IBM Japan acquired the company’s reseller certification—the first company in Japan to do so. The move  should help expand XM’s experience management capabilities in the region.

XM formed  a strategic partnership with ServiceNow, Inc. (NOW) this month. The collaboration is designed to help companies deliver next-generation employee experiences and customer service. It partnered with Korn Ferry in February to extend the power of its DEI solution.

Consistent Product Innovations

Qualtrics introduced its  DesignXM and Experience Design studio last week. These new innovations  are expected to equip all a company’s employees—from market and UX researchers to marketing and product leaders—to design  new products, services and experiences. XM also launched its new XM operating system (XM/OS) this month. It is a single, secure cloud-native platform that enables companies to bring together all their data for analysis.

And in February, Qualtrics launched Health Connect, an automated integration that connects Electronic Medical Record (EMR) systems directly to its platform to help healthcare organizations improve  patient experiences.

Mixed Financials

For the fourth quarter, ended December 31, 2020, XM’s subscription revenue increased 33.1% year-over-year to $160.40 million, while its revenue from professional services and other increased 1.6% year-over-year to $53.17 million. The company’s gross profit increased 35.6% year-over-year to $162.11 million for the quarter. However, its operating loss for the quarter was  $10.99 million and its net loss was $14.48 million. Also,  its non-GAAP loss per share came in at $0.02.

POWR Ratings Reflect Uncertainty

XM has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, XM has a C grade for Growth, which is consistent with analysts’ expectations that its EPS will remain negative in its fiscal years 2020 and l 2021.

The stock has a C grade for Quality also.  This is justified because  its trailing-12-month gross profit margin of 74% is higher than the industry average 48.6%, but its trailing-12-month return on total assets is negative compared to the industry average  2.8%.

It has a D grade for Value, which is in sync with its forward EV/S of 18.03x, which is 316.4% higher than the industry average4.33x, and its forward P/S of 17.99x, which is also much higher than the industry average  4.09x.

XM is ranked #58 of 118 stocks in the D-rated Software – Application industry. Click here to see XM’s ratings for Momentum, Stability, and Sentiment as well.

Better than XM: Click here to access 26 top-rated stocks in the same industry.

Bottom Line

XM’s easy-to-use platform is used by many companies across various sectors, including retail, healthcare, financial services, media, and travel and hospitality. However, we think it is wise to wait to invest in the stock until the company can generate significant earnings, which seems unlikely in the near term. 

Click here to check out our Software Industry Report for 2021

XM shares rose $0.02 (+0.06%) in premarket trading Wednesday. Year-to-date, XM has declined -25.58%, versus a 10.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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