Medallia Tanks 13% On Softening Sales Trend; Street Is Bullish

Medallia reported better-than-expected 3Q results on Friday. However, shares of the cloud-based customer feedback management software provider plunged 13.2% as its 4Q outlook projects a continued slowdown in its sales growth rate.

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For 4Q, Medallia (MDLA) expects to generate revenues of between $123.5 million and $125.5 million, reflecting year-over-year growth in the range of 12%-14%. This marks a slowdown in the company’s quarter-on-quarter growth rate. Medallia posted revenue growth of 25% and 17% in 2Q and 3Q, respectively.

Meanwhile, its 3Q revenues of $121 million topped analysts’ expectations of $116.9 million. The company reported non-GAAP EPS of $0.01 for the quarter, which compared favourably with Street estimates of loss per share of $0.01. (See MDLA stock analysis on TipRanks).

Medallia CEO Leslie Stretch said, “I was very pleased with our execution in Q3. We added the most new customers in any quarter. Our wins included major enterprise brands across verticals and geographies. We added more than a dozen new go-to-market partners and hired more strong talent to support our growth. With two full virtual quarters behind us, we are confident in our future prospects for Q4 and for fiscal year 2022”.

Following its earnings, Needham analyst Scott Berg reiterated a Buy rating on the stock and the price target of $40 (31.2% upside potential). In a note to investors, Berg wrote, “Medallia reported solid 3Q financial results with metrics suggesting demand is quickly ramping up post COVID.” The analyst further added, “Medallia also announced several new deals and renewals with customers in the troubled COVID verticals, which may be restarting new demand activity of a large target TAM (Total Addressable Market) that could fuel additional FY22 bookings that have been limited in the FY21 results.”

Like Berg, the rest of the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 3 Buys and 1 Hold. The average price target stands at $37.75 and implies upside potential of about 23.9% to current levels. Shares are down by about 2% year-to-date.