ServiceTitan’s (TTAN) first quarter as a public company combined the positives and negatives previewed on their IPO roadshow in December. Positives include Net Dollar Retention (NDR) exceeding 110% for the 11th consecutive quarter, Gross Dollar Retention (GDR) over 95%, and slight platform revenue acceleration to 26% (vs. 25% FQ2). Cautionary data points: elevated costs in S&M 28% (Long-Term target 18-20%), R&D 27% (Long-Term target 20-22%), continued losses in Professional Services -86% margin creating a meager 1% Operating Margin (Long-term target 25%).
Professional services continue to drag considerably on operating margins (seen in the chart below) -86% consistent with the prior quarter. Management believes professional services are an investment in their customers but serve to drag the overall GM down from the high 70 to the high 60s-low 70% range. R&D (27%) remains elevated relative to their vertical software peers (high teens) and will trend upward as they continue to build out their “Pro” platform offerings. S&M is also elevated to their long-term target and comparable vertical software targets (high teens). Further, they expect an increase in G&A next year as they incur public company costs; there is little room for any operating margin leverage in the foreseeable future.
The company’s top-line growth strategy involves two areas outside of their Core product offering (FSM, HCM, ERP, CRM): (1) add-on products, as it has developed 10 Pro Products over the past five years, and (2) FinTech, which includes payments (credit card and check processing) and third-party consumer financing. While seasonal, GTV, which fuels FinTech, the year-over-year growth decelerated to 20% year over year in the quarter. TTAN takes a small percentage of the GTV in usage revenue and reports that on a net basis, typically 25 basis points.
Following a post-IPO surge of nearly 50%, the stock trades at a very full ~11x Enterprise Value to FY 26 (January 2026) revenue multiple. With limited, if any margin expansion, it may be tough for the stock to move much higher over the next year.
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