Promising young ASX tech company Nuix Ltd (ASX:NXL) has had a rocky start to life on the share market. After first listing on the ASX in early December, its share price soared as high as $11.855, before plunging more than 60% to a low of just $4.20. And even after a modest recovery more recently, its shares are down another 3% today and are currently trading at only $4.47.
Let's first take a look at what Nuix does, and then investigate the reasons for the massive decline in its share price.
Company background
Nuix is a data analytics company. Its software is designed to help its clients sift through massive amounts of data – including things like social media posts and emails – to deliver insights and actionable solutions. For example, the company's digital forensics software has been able to help police in Scotland investigate complex fraud cases. In some instances, Nuix was even able to help police cut down the investigation time from years to a matter of months.
Recent announcements
The Nuix share price really went south after the release of the company's first-half FY21 results. Revenues declined by 4% year-on-year (to $85.3 million), while net profit after tax (NPAT) came in at $9.5 million.
It wasn't a terrible result for a junior tech company, but it fell short of its own expectations. First half revenues only made up 44% of the company's full year forecast, while NPAT was 48%. This result underwhelmed investors, and left Nuix with plenty of ground to make up over the second half of the year if it planned to hit its performance targets.
Then, last week, we found out that even Nuix no longer believed it could hit those targets. The company released an updated forecast for FY21, in which it downgraded its full-year revenue target from $193.5 million to between $180 million and $185 million. It also stated that it now expected annualised contract value (ACV) to be between $168 million to $177 million (well below its prospectus forecast of $199.6 million).
Nuix blamed the downgrade on customers switching from "module-based subscription licenses to consumption and Saas [software as a service] license models, resulting in a shift in both revenue and ACV profiles." While this has had a negative impact on the company's short-term revenues, Nuix stated that it does not "diminish Nuix's growth prospects which remain strong, as evidenced by ongoing increases in new customer acquisition and retention."
There may be some evidence to support this assertion, with the company adding more customers in the nine months ending 31 March 2021 than it had done over the prior comparative period. Nuix has also entered into a number of longer-term (2 to 5-year) contracts with major customers, including a top US law firm and a French financial services company.
Where next for the Nuix share price?
It's hard to say what will happen to the Nuix share price over the short to medium-term. Unfortunately for Nuix, it has made the mistake of disappointing the market in one of its first financial announcements since listing on the ASX.
The release of the FY21 revenue downgrade – no matter the underlying cause – hasn't done the company any favours either. It means that the second half of FY21 may well turn out to be a crucial period for the Nuix share price as the company tries to regain some investor trust.
