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Medallia: Buy Before It Heats Back Up

Jun. 08, 2020 11:18 AM ETMedallia, Inc. (MDLA)6 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of Medallia have shed ~20% since reporting Q1 results, despite beating Wall Street's expectations.
  • Though we've seen Medallia's revenue growth decelerate since the beginning of the pandemic, the company's valuation correction right-sizes for that reduction in growth.
  • Medallia is also a good growth/profit balance story, with positive cash flow growth.
  • Medallia also retains substantial liquidity on its balance sheet.

With the market having almost fully recovered to year-end 2019 levels after a sharp recovery in April and May, it's almost getting difficult to find bargains to invest in again. This is especially true of the tech sector, where the NASDAQ has outperformed all year as investors piled into companies less susceptible to retail closures and lockdown orders.

The same, however, cannot be said of Medallia (NYSE:MDLA), a recent IPO (the company went public almost a year ago in July at $21 per share) that is still down ~20% for the year and about 45% from all-time highs. With valuations running away from most stocks, this makes Medallia especially worth looking into at current levels.

Data by YCharts

Of course, Medallia has been hit hard by the coronavirus, perhaps more than other software stocks that may even have benefited from the conversion to remote-work. Medallia specializes in customer-experience software, and companies have been aggressively taking down marketing and customer outreach expenses as an "optional" use of cash that needs to be conserved during the pandemic. In addition, in terms of sector exposure, some of Medallia's slowdown owes to the fact that its second-largest vertical is Retail & Auto, representing 20% of revenues:

Figure 1. Medallia industry mixSource: Medallia Q1 earnings deck

In my view, however, Medallia's steep decline since the beginning of the year right-sizes the stock's valuation against lower growth expectations. The company is also profitable on a pro forma basis and generating free cash flows, on top of having substantial liquidity - which certainly differentiates Medallia against most SaaS stocks, especially amid an uncertain macro environment.

We also like the fact that, in spite of current global turmoil, the majority of Medallia's customer base are large blue-chip companies, which rarely ever cut their software subscriptions. In spite of challenges, we haven't heard of

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I am/we are long MDLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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