Online payroll and human resource software provider Paycom (NYSE:PAYC) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 13.6% year on year to $493.8 million. On the other hand, the company’s full-year revenue guidance of $2.03 billion at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP profit of $2.32 per share was 17.7% above analysts’ consensus estimates.
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Paycom (PAYC) Q4 CY2024 Highlights:
- Revenue: $493.8 million vs analyst estimates of $481.2 million (13.6% year-on-year growth, 2.6% beat)
- Adjusted EPS: $2.32 vs analyst estimates of $1.97 (17.7% beat)
- Adjusted EBITDA: $214.9 million vs analyst estimates of $188.2 million (43.5% margin, 14.2% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $2.03 billion at the midpoint, missing analyst estimates by 1.2% and implying 7.5% growth (vs 11.2% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $830 million at the midpoint, above analyst estimates of $811.8 million
- Operating Margin: 30.1%, up from 24.6% in the same quarter last year
- Free Cash Flow Margin: 21.2%, up from 9.9% in the previous quarter
- Market Capitalization: $11.37 billion
“Throughout the year we executed our plan of providing world-class service, solution automation and client ROI achievement, which empowered us to deliver better than expected results to close out the year,” said Paycom founder, CEO and chairman, Chad Richison.
Company Overview
Founded in 1998 as one of the first online payroll companies, Paycom (NYSE:PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.
HR Software
Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Luckily, Paycom’s sales grew at a decent 21.3% compounded annual growth rate over the last three years. Its growth was slightly above the average software company and shows its offerings resonate with customers.
This quarter, Paycom reported year-on-year revenue growth of 13.6%, and its $493.8 million of revenue exceeded Wall Street’s estimates by 2.6%.
Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Paycom is extremely efficient at acquiring new customers, and its CAC payback period checked in at 8.6 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Paycom more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Key Takeaways from Paycom’s Q4 Results
We were impressed by how significantly Paycom blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance came in higher than Wall Street’s estimates. On the other hand, its full-year revenue guidance slightly missed and its revenue guidance for next year suggests a slowdown in demand. Overall, this quarter was mixed. The stock remained flat at $208 immediately following the results.
So do we think Paycom is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
