Seeking Alpha
Portfolio strategy, short ideas, value approaches, global shipping and trade
Profile| Send Message|
( followers)  

I have written about QlikTech (QLIK) several times over the past 6 months, and after their Q3-11 results, I pointed out that expenses were growing faster than revenues, and that massive dilution also was impacting shareholders. I also highlighted strong insider sales in another article with a shocking selloff of 37.8% of insider shares in the previous 6 months.

Missed Q4-11:

In my previous article, I quoted that "QLIK is predicting a $.30 EPS for FY11, yet the company has lost $.05 YTD. $0.35 EPS in Q4-11 is an enormous target compared to previous results." Sure enough, the results are in, and QLIK reported a GAAP profit of 18 cents for the quarter and 11 cents for the entire year. This is a screaming miss of 19 cents, and yet analysts choose to report the (much-smaller) non-GAAP miss while also ignoring that QLIK missed their own targets by a longshot.

The non-GAAP EPS for FY11 was 27 cents which is a smaller miss; however, the choice to go non-GAAP is very misleading. Qlik is (legally) "cooking" their results by hiding away a stock compensation expense that has quadrupled in the past year. This is a very real expense to shareholders, and any rational investor would refuse to discount this expense away. There is a REASON that these results are not generally accepted accounting principles.

Revenues Growing y/y, but less then Expenditures:

Over the past year, QLIK has grown their revenues by an impressive 41.5%. Even more impressive is a ridiculously strong gross margin of 89.3%. However, the part that kills QLIK is their operating expenditures, which grew at a y/y rate of 52.5%, resulting in operating margin of only 6.13%. The operating margin for FY10 was 12.17%, so from a profitability perspective, QLIK is clearly heading in a poor direction.

Losses Ahead:

QLIK predicted losses of 6-8 cents in Q1-12 and a total 2012 profit of 40-44 cents, once again non-GAAP.

As QLIK states directly in their release:

QlikTech's expectations of non-GAAP net income per diluted common share for the full year exclude stock-based compensation expense and employer payroll taxes related to stock transactions and assume a tax rate of 32% and weighted average shares outstanding of approximately 89 million.[emphasis added]

Exclusion of stock-based compensation expenses:

In FY2011, these total expenditures rose to 12.58M from 3.02M in FY2010. An increase of 317%.

Assuming flat line expensing (no y/y growth), this will knock QLIK down to a GAAP EPS of 26-30 cents for FY2012. It is worth noting that in FY2010, QLIK earned 21 cents per share (GAAP) and predicted earnings of $0.32-$0.35 (non-GAAP) in FY11. Even playing in QLIK's "own financial sandbox," they managed to miss their set projections by 19.4%.

GAAP Results & Trajectory:

Let us bring the results back to a balanced standpoint without a write-off of stock-based compensation.

FY10 - Revenue of $226.5M, profit of $13.52M, net margin of 5.97%, EPS of 21 cents.

FY11 - Revenue of $320.6M, profit of $9.04M, net margin of 2.82%, EPS of 11 cents.

FY12 (Official Projections) - Revenue of $410M

I might be on a limb here, but with the current trajectory of operating expenses growing faster than revenue, I doubt we will see any EPS growth in GAAP terms.

Stock Price is Unconnected to Reality:

A company that misses their own earnings expectations by 19.4% in non-GAAP terms while suffering a 47.6% decline in GAAP EPS would be expected to have an abysmal stock performance y/y, correct? Not for QLIK - while insiders have shed close to 40% of their holdings, QLIK stock had increased 24.64% since they reported their FY10 numbers after market close on March 1, 2011.

Hmmm? Miss projections by 19.4% and appreciate stock price by 24.6%. No wonder investors want a piece of this irrational action. The gig is up, drop this 273 P/E, 8.3 P/S, 6.7 P/E/G piece of garbage now.

Source: Qlik Technologies: Heading In A Bad Direction From A Profitability Perspective