Demandware Inc. (NYSE:DWRE) offers a platform to establish and execute digital commerce strategies. The company is due to announce it’s Q3 2013 earnings report on Oct 5 before market hours. Let’s take a look at the company’s past performance and what to expect in the numbers tomorrow.
Demadware's Past Performance
The chart above shows that the Y/Y revenue growth rate at the company has been slowing down over the last few quarters. That is not much of a reason to worry as it is more or less along expected lines. The company has been non-profitable in 8 out of the last 10 quarters which is a cause of concern from investors’ point of view. The table below shows the historical operating profit margins the company has enjoyed.
|2013 Q2||2013 Q1||2012 Q4||2012 Q3||2012 Q2||2012 Q1||2011 Q4||2011 Q3|
|Revenue (in millions USD)||23.21||20.51||26.32||18.71||18.36||16.09||18.62||13.48|
|Operating Margin (in %)||-36.23||-35.64||12.65||-19.03||-27.67||-11.44||16.27||-11.05|
Considering the current revenue levels, we do not expect the company to generate profits but the concern has been the increasing losses which the company has been incurring. But, there is a vast difference between being unable to increase profit margins and falling profit margins. The worrying fact about Demandware has been the increase in its losses inspite of the increase in its revenues. That has resulted in an impact on the earnings of the firm which have remained stagnant for close to 10 quarters now.
A positive for the company has been its steady increase in operating cash flows over the last two years. A major cause for the increase in its operating cash flows has been an increase in deferred revenues, which results from sales booked in advance. Although this is a huge positive for the company, it does not justify the huge valuation which investors currently valuing the company at. The company currently has a price-to-sales (P/S) multiple in excess of 15, making it an extremely risky investment at its current price levels.
Demandware Earnings history
According to nasdaq.com, Demandware has beaten analyst estimates of earnings 3 times in the last 4 quarters. The average earnings surprise over the last 4 quarters has been 37% higher than analyst estimates. The earnings estimates for Q3 2013 stand at a loss of 25 cents per share, which represent a Y/Y fall of over 12 cents compared to Q3 2012.
The company will, in all likelihood, see robust revenue growth in excess of 20-22%. However, the operating profit margin is what we will be looking at, a number which the company will have to improve in order to grow its earnings. We, at Amigobulls, value earnings growth as a critical part of our decision making and Demandware hasn't been doing well on the earnings front.
To see Demandware’s current stock price, please click here: (NYSE:DWRE)