After an Earnings Pop, Is This AI Stock Ready to Soar? | The Motley Fool

Appian (APPN 0.25%) has struggled on the stock market in recent years even as it's continued to deliver steady top-line growth.

However, the company gave investors some good news last week with its fourth-quarter (Q4) earnings report sending the stock up 16% on Wednesday. Appian has since given up most of those gains in line with a broader decline in the market on general economic concerns, but the news nonetheless shows the company is on the right track as it has made artificial intelligence (AI) the centerpiece of the Appian platform, a suite of software tools that help businesses more efficiently handle operations like insurance-claims processing and government procurement, and validate financial transactions.

In Q4, cloud-subscription revenue rose 19% to $98.9 million, driving overall revenue up 15% to $166.7 million, which beat estimates at $164.3 million. On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $1 million to $21.2 million, showing the results of the company's focus on efficiency and restructuring its go-to-market strategy, an effort that is ongoing but "bearing fruit" according to CEO Matt Calkins. On a generally accepted accounting principles (GAAP) basis, operating expenses rose just 3.5%, showing it's successfully controlling costs.

Looking ahead, the company's top-line guidance for 2025 seemed conservative with cloud-subscription revenue growth expected to rise 14% to $419 million to $421 million and overall revenue up 10% to $680 million to $684 million. Bottom-line guidance was strong, however, as the company sees adjusted EBITDA nearly doubling to $38 million to $42 million, again showing the effects of its focus on efficiency and the scalability of the subscription business model.

Appian's AI position

Appian has evolved over the last several years from centering on low-code software to business-process management automation to now AI. However, its purpose has been the same throughout that transition. The company helps its customers, including governments and companies, more efficiently handle processes and workflows so they can redeploy capital and labor to areas where they're needed.

AI is well suited to Appian's goals, and Calkins sees it having a significant impact on the company's business, believing that AI has roughly doubled the value of process-automation technology, meaning that the total addressable market (TAM) has also doubled. Appian needs to execute on that opportunity, but the opportunity is clearly there. Calkins said in an interview with The Motley Fool that AI is showing a lot of value, and customers have been pleased with the AI process platform thus far. Its gross renewal rate, one indicator of customer satisfaction, remains nearly perfect at 99%.

Appian is competing against the usual cast of characters, including Pegasystems, Microsoft, Salesforce, and ServiceNow, and each one is offering its own approach to agentic AI. How it performs in that battle will go a long way toward determining its future success.

Is Appian a buy?

Over the last few years, Appian has sharpened its focus on profitability. While the company continues to prioritize growth, it has also optimized its spending, improving adjusted EBITDA and margins. Those trends are expected to continue over the next year and beyond, while the company continues to hone its go-to-market strategy to maximize the return on its investment in its sales force and sales execution.

Based on its forecast of $38 million to $40 million in adjusted EBITDA, the stock trades at about 60 times that figure, and it's still unprofitable on a GAAP basis.

Calkins said that the company is in a good place heading into a new year, noting, "I feel like the foundation has been laid over the last couple years ... to put us in place to have a breakout." The opportunity is there. If Appian executes, the stock has a lot of upside from here.