Qualtrics experiences 36% full year growth as SAP mulls selling its remaining stake

As SAP announces its intention to explore divesting its stake in Qualtrics, the Experience Management (XM) specialist topped Wall Street estimates with its latest numbers. 

For Q4, the company turned in a loss of $256.4 million on revenues of $389.1 million, up 23% year-on-year. For the full year, losses were $1.06 billion on revenues of $1.46 billion, up 36% year-on-year. Subscription revenue for Q4 was up 26% year-on-year to $327.6 million, while for the full year it was up 41% to $1.224 billion. 

The results came out the day before SAP announced its own numbers, which included confirmation that the firm is exploring selling its remaining 71% stake in Qualtrics, which it bought for $8 billion back in 2018. SAP said in a statement this decision was in line with its strategic initiative to streamline its portfolio:

This would be a continuation of the strategy we set at the time of the Qualtrics IPO in 2021. SAP believes that this potential transaction could unlock significant value for both companies and their shareholders; for SAP, to focus more on its core cloud growth; for Qualtrics, to extend its leadership in the XM category that it pioneered. 

Since the acquisition, Qualtrics has increased by 3.5x to [circa] $1.5 billion while delivering profitability, and has significantly expanded its offerings and enterprise customer adoption. In the event of a successful transaction, SAP intends to remain a go-to-market and technology partner, servicing its joint customers and contributing to its growth and category leadership. 

Customer growth 

All of that is, putatively, yet to come. For now, Qualtrics CEO Zig Serafin focused on the positives: 

We finished the year with more than 18,750 customers as organizations invest in Qualtrics for our proven leadership platform capabilities and innovation road map. The number of customers spending more than $100,000 with Qualtrics annually increased by 17%. And the number of customers spending more than $1 million annually increased 32% year-over-year.

While we continue to see increased scrutiny of deals in Q4, our win rates remained strong. And our existing customers continue to invest in Qualtrics, which you can see in our 120% net retention rate…In Q4, market leaders like Delta Airlines Principal Financial, Roche, Bridgestone, Farmers Insurance and Quanta grew their investments in Qualtrics because they understand the value of truly knowing their customers and employees so they can make the right decisions and take the right actions for them.

Serafin picked out an expansion of the firm’s relationship with automotive giant BMW as a case in point: 

BMW is focused on customer-centric innovation, and we're proud to be their experience management partner. We're working with them to manage every aspect of the customer experience, from how people build and order their vehicles online to test drive at the dealerships, to service management for owners. With Qualtrics, they can bring all of their experience data together on a single platform to create a seamless experience across these channels. They'll be able to identify issues faster and intervene in the moment, and this will help the BMW Group deliver more connected, holistic and personal experiences, building deeper relationships with their customers at every turn. 

YUM Brands, owners of KFC, was also highlighted:

At a time when frontline employees are in short supply, KFC will use Qualtrics Discover, engage and social connect to rapidly collect and analyze millions of data points across 27,000 restaurants. They'll be able to enhance the ordering and delivery experience across the network and give operators a real-time view of employee and guest feedback, so franchisees can take immediate action to improve experiences on the ground.

The firm is being cautious in its outlook for 2023, acknowledging that the current macro-economic turbulence is likely to persist throughout 2023. Serafin said: 

No-one’s immune to what we're seeing in the marketplace, but there's also been a continuation of the general pattern of people exercising more scrutiny, deal cycles extending. That's been something that we've talked about. But we believe that we're faring better than others because of the value of the platform, particularly right now, where companies are honing in on technology and solutions that affect the way that they can drive performance in their own companies. Things like how to drive revenue with customers, understanding what's most important, how do you take the right actions in the right places, while at the same time, finding ways to be able to save costs and operate more efficiently. We happen to hone into areas that are at the intersection of those points, given the way that we've designed our platform. And it is why we continue to see demand remaining strong in spite of the fact that you see elongated deal cycles.

He added: 

The other important trend around pipeline is that more budget centers are looking to consolidate relatively less efficient point solutions that they've been running, for example, in the call center. There's many other examples like that. And so the color and the mix of the type of pipeline coming our way is unlocking access into adjacent budget centers and/or maybe deeper levels of budget that people want to deploy towards our system, which also contributes to the building up of increasingly higher levels of pipe and also expands the opportunity.

My take

So, in theory, it’s onwards to the next phase of the Qualtrics story, subject to market conditions and regulatory approval etc etc.

Serafin tells diginomica:

This is another step in our journey with SAP, one that has the potential to give Qualtrics an even greater opportunity to accelerate our growth and our category leadership in Experience Management. We believe it’s  a win-win situation, where we can continue our partnership with SAP and unlock new value for both of our companies and our shareholders.

The firm hasn’t, as Serafin pointed out, been immune to the current economic climate any more than anyone else, with a five percent headcount reduction announced earlier this month. But growth rates are still on the up and there are some impressive logo additions and expansions to be seen in the customer line-up. Onwards! 

We’ll be picking up SAP’s numbers and management’s comments on the Qualtrics decision - as well as the firm’s own 2.5% workforce reduction plans - later today.