BlackLine’s (NASDAQ:BL) third-quarter revenue exceeds expectations, but customer growth is slowing

Looking further ahead, sell-side analysts expect revenue to grow by 8.4% over the next twelve months, a slowdown from the past three years. This projection does not make us enthusiastic and illustrates that the market believes its products and services will experience some headwinds in demand.

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In addition to revenue, billings are a non-GAAP metric that sheds additional light on BlackLine’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.

Over the past year, BlackLine’s billings growth has been poor, up an average of 9% year-over-year and up $154.9 million in the last quarter. This alternative revenue measure has been growing slower than revenue, meaning the company is recognizing revenue at a faster rate than it is raising cash – a liquidity headwind that could also indicate a slowdown in future revenue growth.

One of the best parts of the software-as-a-service business model (and one reason they trade at high valuations) is that customers typically spend more on a company’s products and services over time.

BlackLine’s net revenue retention, a key performance metric that measures how much money existing customers from a year ago are spending today, was 105% in the third quarter. This means that even if BlackLine had not acquired any new customers in the last twelve months, revenue would have increased by 5%.

BlackLine has an adequate net retention rate, which shows us that it is holding up overall but lagging behind the top SaaS companies, which routinely post net retention rates of over 120%.

It was encouraging to see that BlackLine narrowly exceeded analyst revenue expectations this quarter. On the other hand, customer base growth slowed and Wall Street billings fell short of expectations. Overall, this was a weaker quarter. The stock was flat at $59.45 immediately after the results.

BlackLine’s last quarter wasn’t that good. However, one earnings report doesn’t define the quality of a company, so let’s examine whether the stock is a buy at its current price. The last quarter does matter, but not nearly as much as the fundamentals and longer-term valuation when deciding whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.