Earning Guidance

I wanted to share how I use earnings guidance from a company.  All SaaS companies have a very good handle on their business into the next quarter.  This is because:

1) a lot of revenue is recurring
2) by the time they report, usually a month of the next quarter is already in the books
3) they know what business will close within the next 2 months

So a company knows pretty close to what they will do next quarter, and then subtracts a margin of safety.

I will use Atlassian as an example since they just reported.

Coming into the recent quarter, this is the history.

		Guidance	Actual		Diff.

1Q18		186		194		8
2q18		205		213		8
3Q18		219		224		5
4Q18		234		244		10
1Q19		260		267		7
2Q19		289		299		10
3Q19		305		309		4
4Q19		331		335		4
1Q20		353		

So I would say with 90% certainty that they were going to beat guidance by 4-10 M.

They came in at 363 (+10 M).

I own most of the companies discussed on this board, and do this analysis. I am not seeing a slow down in growth.  We would see it in guidance for next quarter.

I big red flag would be if companies start beating their guidance by less than they have in the past.  

This would tell me they are missing their "internal" estimates and business isn't going to plan.

Jim
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