Qualtrics Stock Uses AI for Experience Management

Have you ever noticed that you can go years without hearing a particular word or name, but then suddenly it keeps popping up in uncanny ways? Lately, for us, it’s been SAP (SAP). No, we’re not talking about saps, as in Fools, but the world’s third-largest software company by revenue. Software developed by the $100 billion-plus German corporation is nearly as ubiquitous among enterprises as companies like Microsoft and Oracle (the No. 1 and No 2. software companies by revenue). 

SAP most recently popped up in an article about DocuSign. The former is a global reseller for the latter, integrating DocuSign’s eSignature service into various SAP software products. In addition, SAP is also a major investor in Icertis, a well-funded startup that competes directly with DocuSign in cloud-based contract lifecycle management.

About Qualtrics Stock

Circuitously, that brings us to Qualtrics (XM), a competitor to UserTesting (USER), which uses artificial intelligence to collect, organize, and analyze data from videos for customer market research. We first came across Qualtrics years ago in an article about big data unicorns before the name re-emerged in relation to UserTesting. All the jargon about experience management – corporate speak for managing customer and employee interactions – did not hold much interest for us at the time of our original coverage of Qualtrics. 

But a lot has happened in six years: Qualtrics was poised to go public in 2018 before SAP scooped it up at the last minute for $8 billion. About two years later, SAP spun off Qualtrics with an IPO in January 2021, taking advantage of investor appetite for just about anything that combined artificial intelligence (AI) with software-as-aservice (SaaS).

It certainly paid off for SAP, which still holds 84% of the common stock in Qualtrics and 98% of the voting power. SAP took the $1.55 billion from the IPO to pay off debt, and then doled out another $1 billion in stock-based compensation last year. That’s pretty much equal to the total revenue Qualtrics brought in for 2021, leaving the company with about $1 billion in losses for the year. Even better for SAP: Qualtrics stock ended its first day of being publicly traded up by 52% with a market capitalization of $27 billion. Of course, much has changed in the last 18 months. Today, Qualtrics has a market cap of about $7 billion, losing about 75% of its value during that time, despite posting some significant revenue growth:

Lots of revenue growth and lots of losses, mostly thanks to some creative stock-based compensation by SAP, which maintains ownership of the publicly traded Qualtrics.
Lots of revenue growth and lots of losses, mostly thanks to some creative stock-based compensation by SAP, which maintains ownership of the publicly traded Qualtrics. Credit: Yahoo Finance

We’ll return to the financial picture shortly, but let’s dive into what and how Qualtrics does what it does.

What is Experience Management?

First, let’s expand a bit on our brief definition of experience management from earlier with a little paraphrasing from Wikipedia: Experience management (XM) is how organizations measure and improve the “experiences” of not just customers but other stakeholders like employees. The argument is that experience is just as important an economic indicator as sales of a product or service itself. Experience management platforms automate the process of identifying and improving experiences. In the case of UserTesting, the company is focused on generating alpha for its clients from customer experience analytics by using algorithms to analyze video testimonies.

Qualtrics, on the other hand, covers a much broader market by helping its clients manage not just customer experience, but also employee experience, along with brand and product experience (whatever that entails). The 20-year-old company started out as an online surveys business like SurveyMonkey. Starting around 2012, Qualtrics started to raise some serious cash (about $400 million) from just three well-known venture capital firms (Accel, Sequoia Capital, and Insight Partners) across three rounds through 2017. That year it introduced the Qualtrics XM Platform, presumably the end result of five years and $400 million of development.

How Does the Qualtrics XM Platform Work?

The Provo, Utah-based company does more than just online surveys these days. Its Qualtrics XM Platform enables organizations to “bring together all of their experience data, both structured and unstructured, analyze it with native advanced AI-powered analytics, and take real-time action to continually improve the experiences they deliver across customer, employee, product, and brand.” Last year, Qualtrics acquired a rival experience management company, Clarabridge, for $1.1 billion. That apparently boosted the platform’s capabilities for hoovering up data exhaust from sources such as social media, emails, support calls, chats, and product reviews. 

The platform consists of three parts – Experience iD, iQ, and xFlow – that power all of the company’s applications, products, and use cases. Experience iD offers a single, unified view of everything customers and employees have (wittingly and unwittingly) shared with a company. Qualtrics claims it has 3.6 billion customer profiles – and growing – that can be augmented with juicy details about annual spending or even the most recent purchase.

A customer profile created from structured and unstructured data using AI.
And Steph lives at … Customer profiles are built using data exhaust from social media and other unstructured, as well as structured, data sources. Credit: Qualtrics

Qualtrics iQ is the analytics suite that uses “deep statistical analysis and machine learning” to analyze each piece of feedback. For example, Text iQ, employs natural language processing (NLP) technology to understand customer sentiment and emotion from text in something like an online review or mean tweet. The system also generates recommended actions, which are sent as alerts to the proper employee (the xFlow part of the process). For example, the platform can automatically generate a customer ticket and recommend action when a negative sentiment is expressed on a social media site.

Qualtrics uses AI and natural language processing to understand the haters on the internet.
Algorithms spot problems and route the issue to the right problem solver. Credit: Qualtrics

Based on all that, it would seem that experience management is also corporate talk for protecting its brand and reputation by monitoring what everyone is saying about you. These sorts of social media listening tools started growing in popularity about the time Qualtrics was getting ready to roll out its new platform. Talk about catching a wave.

The Numbers Look Good …

This Big Brother analytics has quickly gained a following. By the end of last year, Qualtrics claimed to have more than 16,750 customers, including 89% of the Fortune 100. As we noted earlier, the company brought in more than $1 billion in revenue, a 41% jump from a year ago. More than 80% of revenue comes from selling SaaS subscriptions to the XM Platform, with the remainder generated by various professional services, such as research and market intelligence. In addition, it only costs 10% of total revenue to bring in 80% of the money, with a total gross profit of 73%.

Qualtrics financials
We like SaaS models because it doesn’t cost much money to make money. Credit: Qualtrics

Nearly all of the subscriptions are at least one year long and billed in advance, with the largest customer in 2021 accounting for less than 3% of revenue. Some other attractive metrics: The number of customers representing $100,000 or more in annual recurring revenue (ARR) reached 1,940 in 2021, up 31% from the prior year, while customers spending more than $1 million annually nearly doubled to 143. Net retention rate was a hefty 128%, meaning customers continued to spend even more money to spy on monitor their customers and employees. The company is slowly working to capture more business abroad, with revenue outside of the United States accounting for 29% of total revenue in 2021.

These are all encouraging numbers, and the Q1-2022 results released in April demonstrated that Qualtrics has a hard-working sales team. Revenues clocked in at more than $335 million, an increase of 41% from a year, though the full 2022 outlook of about $1.4 billion would only represent about 30% growth in total revenues from last year. 

But we have no intention of investing in Qualtrics stock any time soon. As we asked in our piece on UserTesting: Does the company create enough economic value for its customers that the offering will be resilient during times of economic turmoil? The history is too short to answer that question. Experience management seems like one of those nice-to-haves in the office like free coffee in the morning. Net retention rate will be a critically important metric for investors to watch going forward as companies look to tighten their purse strings with the market turning south.


Perhaps if you hire competent people and offer good products and reliable service, then you don’t need to monitor the entire internet so you can respond in real time to Elon Musk dissatisfied customers. That being said, the squeaky wheel gets the grease, and everyone with a Twitter account now has an axe to grind if companies fault them in any way. But if Qualtrics cannot show hard numbers that demonstrate a return on investment for their clients, their experience management offering just might be on the chopping block when it’s time for budget cuts.

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