Couchbase: A Strong Database Play But Watch Out For Profitability

Summary Couchbase is a database company that is seeing success in evolving its products to the cloud. The way the company has designed its database is resulting in better revenue growth than competitors since the beginning of 2022. However, this remains a loss-making company, and with profitability being a critical criterion during high inflation times, there are risks that the stock could suffer from downside if margins fall. Still, given product strength, cash position, and the significant backlog, together with the ability to generate recurring revenues, this is a stock to be put on your watchlist. Watch out for the company's ability to cut down on operating losses before investing.

Couchbase's (NASDAQ:BASE) stock has lost more than 34% of its value since the start of 2022 as it became increasingly clear that the Fed Reserve would have to aggressively increase interest rates to bring down the high inflation. The stock has been more impacted than even the tech-heavy Invesco QQQ Trust (QQQ), but a noteworthy observation is an upside in the first week of June after good first-quarter financial results when the topline guidance was exceeded.

This means that in case the company is able to beat guidance, its share price can rise again, but, in current market conditions where the cost of doing business is rising rapidly as a result of high inflation, this thesis will also focus on the bottom line by analyzing the financial results for the first quarter of 2023 which ended in April this year.

I start by providing an overview of why Couchbase is seeing success in the current digital transformation environment.

Couchbase's product attractiveness

With more IT workloads moving to the cloud, organizations are faced with challenges of how to manage their databases. Now, unlike front-end applications, databases hold critical corporate data and cannot just be migrated to the public cloud of providers...