Workiva Stock – Building For Long-Term Success (NYSE:WK)

With inflation rising and the Russia/Ukraine war ongoing, it has no doubt been a bumpy start to 2022.

For Workiva (NYSE:WK) and their main competitors, Donnelly Financial Solutions (DFIN) and Toppan Merrill (private company) these events have led to rather uneventful IPO and SPAC activity in the first quarter of 2022.

Although, the current market is not great for these companies, I believe they will still be successful in this high inflation environment. My main argument for that assumption is the expanded usage of extensible Business Reporting Language or XBRL. (XBRL has been discussed in depth in my prior articles, should you need more background on the subject).

To begin, many European filers will now need to file under the ESEF mandate. This creates a global opportunity for companies like Workiva.

In addition, it has been discussed that further SEC filings such a proxy statements may need iXBRL in the future. The Federal Energy Regulatory Commission (FERC) now has iXBRL requirements and ESG reporting has become a hot topic in the industry as well. Recently, the SEC has proposed adding iXBRL language related to cybersecurity and there are also discussions involving insider trading, and further reporting around SPACs. In short, the usage of XBRL will only continue to expand and Workiva and their peers seemed poised to benefit.

Workiva is the leader in this industry and with their recent acquisitions, the firm is in an excellent position to continue to grow.

Acquisitions

In January, Workiva acquired Arelle which is a system that validates XBRL filers. I believe this is a wonderful acquisition for Workiva. As I have discussed before (and will discuss below for Q4 2021), Workiva has consistently lagged behind peers Toppan Merrill and DFIN when it comes to XBRL quality. This move will very likely begin to pay dividends immediately.

Earlier this month, Workiva acquired the Denmark-based XBRL conversion software provider, ParsePort for $100 million in cash. This will still certainly help the company in the ESEF market, and I like the fact that the ParsePort founders will continue to lead the company in this region.

I feel that both acquisitions will help Workiva acquire further market share, in the current US market and globally.

Now, I’d like to further discuss the status of XBRL quality for Workiva, Toppan Merrill and DFIN and the industry as a whole.

XBRL Quality

In my prior articles, I discussed the origins of XBRL rules and data quality. Currently, a company called XBRL US, and specifically the Center for Data Quality within XBRL US, help ensure the quality and usability of XBRL financial data. Workiva, DFIN, and Toppan Merrill are all members of the Center for Data Quality. Within this organization there is a Data Quality Committee (DQC) who is responsible for developing guidance and validation rules that can prevent or detect inconsistencies or errors in XBRL data filed with the SEC. Toppan Merrill is the Chair of this committee.

Recently, new XBRL rules have come out and as it stands, DFIN, Workiva, and Toppan Merrill all have the same certification.

Similar to Q3 2021 filings, XBRL quality continued to improve in the fourth quarter of 2021. As the findings from XBRL US show, XBRL data quality errors have gone down. Below are a few screenshots of common issues and as you can clearly see the number of errors has been decreasing over the last several years and quarters:

Axis with Inappropriate Members

Element Values are Equal

Reversed Calculation

Incorrect Calculation Weights in Operating Cash Flows

Over the past several quarters, I’ve been following the XBRL data quality results for several large companies. The results have been consistent, Workiva has generally had the worst XBRL quality compared to peers Toppan Merrill and DFIN. The large companies filed with Workiva such as Pfizer, Yum! Brands (YUM), and Walmart (WMT) which I have reviewed in prior quarters in 2021, continued to have issues.

Pfizer (PFE)

Workiva has been providing the XBRL services for this company and you can see the following results from the XBRL US website:

A few issues persist it appears every filing. As mentioned above, perhaps with the Arelle acquisition Workiva’s XBRL quality results will improve.

Similar to last quarter, I was unable to find any issues with Toppan Merrill filings. For example, here is one of their company’s filing results:

Teladoc (TDOC)

Toppan Merrill has been providing the XBRL services for this company and you can see the following results from the XBRL US website:

Considering they Chair the DQC this is company seems to have the best XBRL data quality in the group.

I did find an issues with DFIN filings. As an example, Goldman Sachs had more issues this quarter as well.

Goldman Sachs Group (GS)

DFIN has been providing the XBRL services for this company and you can see the following results from the XBRL US website:

I have discussed this in prior articles but many public companies who do their XBRL “in-house” are more likely to get XBRL errors. I still think Workiva has seen the biggest improvement over the years when it comes to XBRL accuracy. However, Workiva is still likely to file with more errors than either of their main competitors.

I would also like to state due to the complexity of XBRL, I would urge any public company to avoid the “in-house” model. You surely will get XBRL errors eventually.

Financials

Workiva continued to deliver excellent results in Q4 2021. The company generated revenue of roughly $120 million in Q4 2021 which is an increase of nearly 29% compared to Q4 2020. Most of this revenue was generated from subscription and support revenue and revenue from professional services accounted for the rest. Subscription and support revenue was roughly $104 million, an increase of 29% compared to prior year’s fourth quarter. New accounts and new solutions helped drive this growth. Professional services revenue was roughly $16 million for the quarter, an increase of 28% compared to prior-year fourth quarter. This was due to higher XBRL services revenue, an expanding SEC customer base, and FERC XBRL services.

Additionally, management noted that larger subscription contracts have continued to grow which is increasing revenues. Workiva had 1,121 contracts valued over $100,000 per year, which is an increase of 32% compared to Q4 of 2020. The number of contracts valued at over $150,000 per year totaled 578, which is up 38% compared to the prior year. Retention remains outstanding as well, as the subscription and service revenue retention rate was roughly 97% for the fourth quarter of 2021.

Client count continues to rise as well as Workiva finished Q4 2021 with 4,315 clients, a net increase of 592 compared to Q4 2020. The company gained a net 169 customers from Q3 2021.

Valuation

Workiva has yet to achieve profitability, but their P/E ratio is improving. Over the last month, the company’s stock is up roughly 15%. However, over the last three months, the stock is down nearly 13%. Based on many analysts’ projections, the current stock price is below analyst price targets. I believe in the upcoming weeks investors may have an opportunity near $100 a share which I believe is a good buying opportunity.

Conclusion

Despite, the current inflation and global issues, I am I am extremely bullish on the XBRL industry. I believe XBRL service providers will continue to generate higher revenue as usage continues to grow both nationally and globally. As the XBRL leader, Workiva is in a great position in the years to come and with their recent acquisitions, I believe they are still leading the pack.

If the company fails to successfully incorporate Arelle or ParsePort, or if they fail to grow market share given their R&D and M&A efforts, the company may struggle to turn a profit. Additionally, if the SEC decides to not move forward with additional XBRL requirements growth could begin to falter.

Overall, I believe Workiva will continue to excel and despite the harsh current environment, I believe Workiva will outperform most tech stocks. Should the stock fall to $100 a share or less, I would be a buyer.