An enterprise software company grew revenue 46%, 38% and 29% in the last three years. Net revenue retention has fallen from 128% to 111%. Gross margin is steady at 78%. Sales and marketing is 52% of revenue, up from 44%. The company turned free-cash-flow positive last quarter for the first time. It trades at 9x forward revenue against a peer median of 6x. Customer count grew 34% last year while revenue grew 29%.
Write a buy or sell recommendation with the call in the opening lines, the evidence, and the risks that would falsify it.
100 points, 60% to pass.
Customers growing faster than revenue means average contract value is falling — the company is adding smaller customers, which fits net revenue retention dropping 17 points. Rising sales and marketing as a share of revenue against decelerating growth says each rupee of new revenue is getting more expensive. The bull case is that the first free-cash-flow quarter marks a deliberate shift from growth to efficiency and the multiple should hold on that. The bear case is that 9x forward revenue prices growth the company no longer has. A strong pitch picks one and names the quarter's data that would settle it.