EPS of $0.79 increased by 332.4% from previous year
Gross margin of 87.3%
Net income of -18.15M
"Capella now represents 15.1% of our total ARR and one-third of our customers are now using Capella." - Matt Cain
Couchbase Inc (BASE) Q3 2025 Results Analysis: Capella Momentum and AI Services Expansion Drive ARR Growth Amid Moderate Profitability Headwinds
Executive Summary
Couchbase reported solid top-line momentum in QQ3 2025, highlighted by a 17% year-over-year rise in ARR to $220.3 million and a 13% year-over-year increase in quarterly revenue to $51.6 million. The Capella platform continued to gain traction, with Capella ARR reaching $33.2 million (15.1% of total ARR) and Capella representing roughly one-third of customers. Management emphasized the strategic value of Capella migrations and the ongoing mix shift toward Capella, which supports longer-term growth, albeit with margin headwinds as Capella deployments carry a lower gross margin. The company also announced Capella AI Services to accelerate AI-related workloads within Couchbase, signaling a deliberate pivot to an AI-enabled developer data platform.
Near-term profitability remains pressured by ongoing Capella investments and migration-related revenue timing. The third quarter delivered a non-GAAP operating loss of $3.5 million with an 88.2% gross margin, illustrating the impact of expanding Capella mix on margins. Free cash flow remained negative at $17.5 million for the quarter, and free cash flow margin stood at -33.9%. Cash and short-term investments totaled $141.9 million, and RPO was $211.3 million, with about 61% expected to be recognized as revenue in the next 12 months. Looking ahead, Couchbase is guiding for Q4 revenue of $52.7–$53.5 million (roughly flat to up 6% YoY at the midpoint), ARR of $236.5–$239.5 million (about 17% YoY at the midpoint), and a non-GAAP operating loss of $4.7–$5.7 million. Full-year revenue guidance is raised to $207.2–$208.0 million with a non-GAAP operating loss of $19–$20 million. management remains focused on accelerating Capella adoption, expanding AI services, and maintaining discipline on pricing and discounts to protect long-term economics.
Overall, the investment thesis rests on Capella-driven ARR expansion, AI-enabled platform differentiation, and a robust pipeline of strategic opportunities. The pace of Capella migrations and AI-services adoption will be the primary catalysts for outsized revenue growth in the coming years, while near-term profitability will hinge on operational efficiency and the timing of migrations.
Key Performance Indicators
Revenue
51.63M
QoQ: 0.08% | YoY:12.69%
Gross Profit
45.07M
87.30% margin
QoQ: -0.12% | YoY:10.74%
Operating Income
-19.23M
QoQ: 8.62% | YoY:-9.65%
Net Income
-18.15M
QoQ: 8.76% | YoY:-11.67%
EPS
0.79
QoQ: 302.56% | YoY:332.35%
Revenue Trend
Margin Analysis
Key Insights
Q3 2025 revenue: $51.6 million, up 13% year over year (YoY). Sequential revenue change: flat QoQ.
ARR: $220.3 million, up 17% YoY; sequentially up 3% and above midpoint of guidance.
Capella ARR: $33.2 million, representing 15.1% of total ARR, up from 13.5% last quarter; Capella ARR grew 15% sequentially.
Customers and land-and-expand: 903 customers (+34 QoQ); Capella customers +27 QoQ; new logos: 34 in Q3 (vs 24 in Q3 2024).
ARP per customer: $244,000, down modestly from $246,000 last quarter and down from $264,000 in Q3 2024.
Financial Highlights
Revenue and Growth
- Q3 2025 revenue: $51.6 million, up 13% year over year (YoY). Sequential revenue change: flat QoQ.
- ARR: $220.3 million, up 17% YoY; sequentially up 3% and above midpoint of guidance.
- Capella ARR: $33.2 million, representing 15.1% of total ARR, up from 13.5% last quarter; Capella ARR grew 15% sequentially.
- Customers and land-and-expand: 903 customers (+34 QoQ); Capella customers +27 QoQ; new logos: 34 in Q3 (vs 24 in Q3 2024).
- ARP per customer: $244,000, down modestly from $246,000 last quarter and down from $264,000 in Q3 2024.
Profitability and Margins
- Gross margin: 88.2% in Q3, down from 89.5% a year ago and 88.3% in the prior quarter, reflecting higher Capella mix with inherently lower margins.
- Non-GAAP operating loss: ($3.5) million, with an operating margin of about (7.0%). This is 3.1 percentage points above the implied midpoint of guidance, reflecting ongoing investments in Capella and AI capabilities.
- Net income: ($2.4) million; diluted EPS: ($0.05).
- EBITDA: ($16.7) million (EBITDA margin: approximately (32.3)%).
Liquidity, Cash Flow and Balance Sheet
- Cash and equivalents + short-term investments: $141.9 million.
- Remaining Performance Obligations (RPO): $211.3 million, up 29% YoY; ~61% ($128.7 million) expected to be recognized as revenue in the next 12 months (YoY growth ~15%).
- Operating cash flow: ($16.9) million; free cash flow: ($17.5) million; free cash flow margin: (33.9%).
- Total assets: $222.5 million; total liabilities: $95.7 million; total stockholders’ equity: $126.8 million.
- Net cash position: net debt of ($27.2) million (i.e., net cash position is negative; the company carries net debt of this magnitude after considering cash and investments).
Guidance and Outlook
- Q4 2025 guidance: Revenue $52.7–$53.5 million (+6% YoY at midpoint); ARR $236.5–$239.5 million (+17% YoY at midpoint); non-GAAP operating loss ($4.7) to ($5.7) million.
- Full-year 2025 guidance: Revenue $207.2–$208.0 million (+~15% YoY); non-GAAP operating loss ($19) to ($20) million.
- Management commentary emphasizes a large pipeline of strategic opportunities and increasing Capella momentum, but notes macro headwinds and variability in renewal timing and migration timelines; there is an explicit expectation that Q4 will be the strongest revenue quarter due to pre-contracted ARR and renewal activity, with some potential upside in Q1 2026 from non-Q4 closings.
Operational Highlights and Other Notes
- Capella share of ARR is expanding, with Capella at 15.1% of total ARR and still only one-third of customers on Capella, suggesting substantial future mix shift opportunity.
- Capella migrations and large enterprise wins continue to accumulate, including a Fortune 500 hospitality company migration that is expected to triple Couchbase spend in Capella over time.
- Announced Capella AI Services, including model hosting, vectorization, unstructured data pre-processing, and AI agent catalog services, designed to accelerate AI-enabled application development within Capella and reduce latency and cost concerns for LLM deployments.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
51.63M
12.69%
0.08%
Gross Profit
45.07M
10.74%
-0.12%
Operating Income
-19.23M
-9.65%
8.62%
Net Income
-18.15M
-11.67%
8.76%
EPS
0.79
332.35%
302.56%
Key Financial Ratios
currentRatio
2.13
grossProfitMargin
87.3%
operatingProfitMargin
-37.3%
netProfitMargin
-35.2%
returnOnAssets
-8.16%
returnOnEquity
-14.3%
debtEquityRatio
0.05
operatingCashFlowPerShare
$-0.33
freeCashFlowPerShare
$-0.34
priceToBookRatio
6.57
priceEarningsRatio
-11.47
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Themes and management insights from the QQ3 2025 earnings call:
- Strategy and AI integration: Matt Cain highlighted Capella as a strategic platform for a wide range of use cases and emphasized Capella AI Services (model hosting, vectorization, unstructured data pre-processing, AI agent catalog) as a key differentiator in enabling AI-enabled apps. Quote: Capella AI Services is designed to empower enterprises to address AI development and deployment challenges with secure, scalable tooling. “Capella AI Services... model hosting, automated vectorization, unstructured data pre-processing and AI agent catalog services.”
- Capella adoption and pipeline: Cain underscored Capella’s growing mix and broad enterprise pipeline, noting Capella now represents 15.1% of total ARR and one-third of customers are using Capella, with a large multi-million dollar migration milestone in the quarter.
- Revenue and ARR dynamics: CFO Greg Henry discussed Q4 revenue guidance and ARR trajectory, emphasizing pre-contracted ARR and a renewal pool heavily weighted in Q4; he also noted that some ARR could translate to revenue in future periods due to migration timing. Quote: “We expect total ARR in the range of $236.5 million to $239.5 million representing 17% growth year-over-year at the midpoint.”
- Margin and profitability discipline: The company emphasized operating discipline and efficiency, noting that margin pressure is driven by Capella mix and migrations, but that the team remains focused on driving leverage across GTM and R&D.
- AI and platform differentiation: Matt Cain articulated a differentiated platform thesis, combining transactional, analytic, mobile, and AI functionality in Capella, with edge deployment and a robust developer data platform narrative that differentiates Couchbase from traditional databases.
Capella now represents 15.1% of our total ARR and one-third of our customers are now using Capella.
— Matt Cain
Capella AI Services, which we announced yesterday, includes model hosting, automated vectorization, unstructured data pre-processing and AI agent catalog services to empower developers to bring agent-based applications into production safely.
— Matt Cain
Forward Guidance
Assessment of near-term and mid-term outlook based on management guidance and industry dynamics:
- Q4 guidance appears conservatively framed given macro headwinds and variability in enterprise renewal timing. The midpoint implies revenue of about $53.1 million and ARR of about $238 million, with a non-GAAP operating loss of roughly $4.7–$5.7 million. This guidance benefits from a sizable pre-contracted ARR component and a fill-in from large strategic opportunities in the pipeline, but also reflects caution on upsell/migration timing and Capella consumption trends.
- The company anticipates continued Capella-driven growth as migrations from enterprise Couchbase Server and community edition (CE) to Capella progress. Capella ARR accounted for 15.1% of total ARR at QQ3 and is expected to rise meaningfully over time as large accounts migrate more applications.
- Full-year 2025 guidance was raised to revenue of $207.2–$208.0 million (+~15% YoY), with an expected continued non-GAAP operating loss of about $19–$20 million. The plan anticipates Capella as a major growth driver, supported by AI Services expansion and ongoing product enhancements.
- Key factors investors should monitor:
- Capella adoption rate and ARR mix shift (target: higher percentage of total ARR over the next several years).
- Migration cadence for large strategic accounts and the mix between enterprise deployments and Capella consumption.
- Impact of Capella migrations on revenue timing and gross margin trajectory (revenue recognition shifts from upfront licenses to consumption-based revenue).
- Effectiveness of AI Services in accelerating developer adoption, reducing latency for AI workloads, and enabling secure LLM usage within Capella.
- Overall investment thesis: The QQ3 outcomes underscore a continuing transition to a Capella-centric, AI-enabled platform with a robust pipeline of large opportunities. If Capella adoption accelerates and AI Services deliver tangible developer productivity benefits, Couchbase could realize a meaningful uplift in ARR growth and long-term profitability. However, near-term profitability will remain pressured by the investments required to scale Capella and AI capabilities, and the company will rely on disciplined pricing and continued efficiency to protect economics.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
BASE Focus
87.30%
-37.30%
-14.30%
-11.47%
EVCM
66.40%
5.63%
-1.19%
-52.09%
AVDX
73.00%
1.11%
0.60%
103.82%
INFA
73.60%
12.10%
-0.58%
-137.36%
LAW
73.10%
-30.00%
-5.48%
-9.58%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Bottom line: Couchbase is navigating a strategic pivot to Capella and AI-enabled services, which promisingly aligns with the growing demand for scalable, real-time data platforms capable of supporting AI workloads. The QQ3 results show meaningful ARR growth, a broadening Capella footprint, and a differentiated AI Services offering, which should serve as catalysts for longer-term ARR expansion and revenue growth. However, near-term profitability remains constrained by the Capella mix and ongoing migration investments, and investors should monitor the following: the cadence of large enterprise migrations, the uptake of Capella AI Services, the pace of Capella-driven ARR mix shift, and macroeconomic conditions that could impact renewal timing. Given the current trajectory, a constructive stance rests on sustained Capella adoption, progress toward free cash flow positive in 2026, and an improving margin profile as Capella maturates and the platform scales. Valuation remains reliant on durable ARR growth and the ability to convert ARR into revenue and free cash flow over time.
Key Investment Factors
Growth Potential
Capella-driven ARR expansion remains the core growth engine. Capella ARR was $33.2 million (15.1% of total ARR) in QQ3 2025 with 27 new Capella customers added in the quarter, signaling strong adoption momentum. Management cited a multi-quarter opportunity suite with several large enterprise migrations that could meaningfully lift ARR and revenue over the next 12–24 months. The new Capella AI Services adds a differentiated value proposition to accelerate AI workloads and developer productivity, potentially expanding addressable market and deployment scenarios.
Profitability Risk
Near-term profitability remains constrained by Capella mix and migration timing, with a non-GAAP operating loss of ($4.7) to ($5.7) million expected in Q4 and a full-year non-GAAP operating loss of ($19) to ($20) million. Execution risk includes procurement and budget cycles in large enterprises, potential delays in migration timelines, and macroeconomic headwinds that could affect IT spending and renewal velocity. Competitive pressure from hyperscale cloud databases (e.g., MongoDB Atlas) and alternative NoSQL platforms could influence price and conversion rates.
Financial Position
Solid liquidity position with $141.9 million in cash, cash equivalents and short-term investments. RPO stands at $211.3 million, with 61% expected to be recognized in the next 12 months, supporting near-term revenue visibility. Gross margin remains high at 88.2%, but Capella’s lower margin and ongoing Capella-related investments weigh on overall profitability. The company aims to achieve free cash flow positive status in fiscal 2026, highlighting an emphasis on cash generation over time as Capella matures and migration cadence stabilizes.
SWOT Analysis
Strengths
Capella momentum: Capella ARR at QQ3 2025 was $33.2 million (15.1% of total ARR) with 27 Capella migrations in the quarter and a large multi-million dollar Capella migration milestone.