Is Appian a Buy After Its Latest Earnings Report?

Appian (NASDAQ:APPN) came into its third-quarter earnings report in the midst of its strongest rally since the pandemic, up more than 150% from its lows this year.

The process automation software specialist has seen its growth and profitability ramp up in the AI era as the company has incorporated AI across its software platform, and Appian AI, its AI-powered app-building software, is seeing explosive growth.

Customer AI usage jumped 50% sequentially in the third quarter, showing its base of government and enterprise customers are finding value in the company's AI tools. For example, Appian AI helped customers conduct audits three times faster, perform underwriting reviews 75% faster, and run investment processes with 34% greater efficiency.

As a result of its AI growth, overall revenue jumped 25% to 234.6 million, well ahead of the consensus at $217 million. Revenue growth benefited in part from a surge in on-premises revenue, driven by the busiest quarter in the public sector. Cloud subscription revenue, which Appian generally considers its core focus, was up 20% in the quarter to $136.4 million, and total subscription revenue was up 28% to $187.8 million.

On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from $32.2 million to $43.4 million, and adjusted earnings per share jumped from $0.32 to $0.51, well ahead of the consensus at $0.33.

Appian's guidance called for its momentum to continue into the fourth quarter with cloud subscription revenue guidance of $143 million-$145 million, representing 22%-24% growth, and total revenue guidance of $233 million-$237 million, representing growth of 15%-17%. On the bottom line, it sees adjusted earnings per share of $0.30-$0.34, up from $0.15 in the quarter a year ago. For the full year, adjusted earnings per share are expected to double to $1.20-$1.24.

Appian stock was trading up 4% Thursday afternoon after jumping nearly 20% in the premarket session, though the rout in the broader stock market erased some of those gains.

Image source: Getty Images.

Appian's secret sauce

Only a few years ago, Appian was struggling in the post-pandemic era, and as recently as 2024, the company was losing money on an EBITDA basis.

However, Appian has reinvented itself, streamlining its sales force and reorganizing its go-to-market strategy to be more efficient, and those efforts paid off in improved profitability.

In the AI era, the company also sees itself as having established a competitive advantage through its years of work with process automation before AI and its established trust with organizations like government agencies and multinational banks, which have mission-critical applications and prioritize reliability.

Speaking in an interview with The Motley Fool, Appian CEO Matt Calkins commented that its competition has actually decreased in the AI era because the company is now competing at a higher tier. He explained, saying, "The name of the game is reliability because we're talking at the top of the organization and above all they want AI connected to their most important work in a reliable way."

Calkins also said that Appian had done a good job of predicting the evolution of the process automation market, saying that AI had changed the market it's competing in, and added, "I think we've done a number of things right in the last few years, but what I think in retrospect we've done is to see the obvious a little bit in advance."

Above all, Appian is meeting the moment by providing a comprehensive platform built on its data fabric, a top-rated orchestration layer, governance protocols to ensure safety, and an efficiency layer that ensures tokens are used in a cost-effective manner.

On the earnings call, CFO Serge Tanjga said, "We all show up here for work knowing that we should be a much bigger company in a few years," showing strong confidence in the business’s direction.

Appian has the momentum, and AI is providing a massive opportunity. The company expects margins to continue to expand as it grows, meaning 2027 should be another year of strong profit growth. Given that, Appian stock looks like a good bet to keep moving higher.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Appian. The Motley Fool has a disclosure policy.