Why is the Whispir (ASX:WSP) share price sliding 5% on record revenue?

Whispir's record revenue turns out not to be the 'sweet nothings' shareholders were looking for…

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Key points

  • The Whispir share price is down 5.5% as investors digest the company's latest half-yearly results
  • Record revenue growth has not been enough to please shareholders, as costs gain more momentum
  • CEO Jeromy Wells remains optimistic the company can reach cash flow breakeven in the next two years

The Whispir Ltd (ASX: WSP) share price is not in the good books of investors today.

At the time of writing, the cloud-based communications company's shares are down 5.5% to $1.89. The negative sentiment towards the share price follows Whispir's half-year results.

Whispir share price gets shouted down by rising costs

  • Record revenue of $39.4 million, up 70.4% over prior corresponding period
  • Record increase in annual recurring revenue (ARR), rising 26.6% to $60 million
  • Operating expenses increased 75% to $29.9 million
  • Earnings before interest, taxes, depreciation and amortisation (EBITDA) losses widened to $4.6 million compared to $1.8 million
  • Net customer revenue retention of 122.4%
  • Cash position of $38.1 million at 31 December 2021 with no debt

What happened during the first half?

While Whispir achieved record revenue for a six-month period in the first half, investors are not letting it get away with the significant increase in expenses. Record revenue is fantastic for shareholders if it can be done without a disproportional increase in spending.

The communications workflow company witnessed a runaway train for its cost of services during the financial period. A 78.7% surge in cost of services chewed up $16.4 million of the company's $39.4 million of revenue. Given this outpaced revenue growth, margins were compressed.

Likewise, the bottom line felt the pain of rising costs during the first half. This was due to a 75% increase in operational expenses, a line item that removed a further $30 million from Whispir's income for the period. Investors appear to be focusing on this aspect today as the Whispir share price tumbles.

According to the release, a major portion of the increase comes from the addition of 169 employees. Another contribution to the higher costs was Whispir's continued marketing push, resulting in marketing spend rising by 49%.

On the positive side, the Australian and New Zealand business segment achieved the bulk of revenue growth. The region benefitted from a dramatic uplift in high-value contracts across government departments. Additionally, ASX-listed Whispir highlighted particular uptake among utility companies.

Management commentary

Whispir chief executive officer Jeromy Wells said:

The global mega trends of digital transformation are providing strong tail winds, as our established customer base continue to expand use cases and enhance the way they communicate.

It is clear the market is recognising the benefits of the Whispir platform, evidenced by the acceleration in revenue growth in the first half of the current financial year, with ARR increasing 26.6% on the previous corresponding period, to $60.0 million.

Moreover, Wells touched on the benefits that customers can see from the company's technology, stating:

New customers are leveraging the benefits of our technology, particularly the no-code/low-code capability, which means they can get started quickly with no up-front costs or the need for developers. Whispir puts the power of predictive, data-driven communications intelligence at the fingertips of all employees, driving engagement, informing stakeholders with actionable insights to deliver better business and community outcomes.

What's next?

Despite revenue in Whispir's Asia segment falling, the company is pushing forward with its global expansion. Through the expansion of its customer base and increasing platform usage, Whispir still believes cash flow breakeven is possible in the next two years.

November's FY22 guidance has been maintained, targeting $64 million to $68 million in revenue. Whispir's CEO highlighted the platform's low revenue churn (1.8%) as a good indicator these numbers are achievable.

Whispir share price snapshot

Simply put, it hasn't been Whispir's week, month, or even year as we look at the company's share price performance.

In the past 5 trading days, the ASX-listed Whispir share price has fallen more than 12%. Meanwhile, in the last month, the view gets bleaker, with shares down 18%. However, the one-year performance is the most disappointing, with the Whispir share price down by 56%.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Whispir Ltd. The Motley Fool Australia has recommended Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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