Digital transformation consultancy Grid Dynamics (NASDAQ: GDYN) met Wall Streets revenue expectations in Q3 CY2025, with sales up 19.1% year on year to $104.2 million. On the other hand, next quarter’s revenue guidance of $106 million was less impressive, coming in 3.8% below analysts’ estimates. Its non-GAAP profit of $0.09 per share was in line with analysts’ consensus estimates.

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Company Overview

With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ: GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $406 million in revenue over the past 12 months, Grid Dynamics is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Grid Dynamics’s sales grew at an incredible 29.1% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Grid Dynamics’s annualized revenue growth of 13.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Grid Dynamics’s year-on-year revenue growth was 19.1%, and its $104.2 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 5.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.2% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is noteworthy and indicates the market is forecasting success for its products and services.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Although Grid Dynamics broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 1.9% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Grid Dynamics’s operating margin rose by 2.1 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

This quarter, Grid Dynamics generated a negative 0.2% operating margin.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Grid Dynamics’s EPS grew at an astounding 22.2% compounded annual growth rate over the last five years. Despite its operating margin improvement during that time, this performance was lower than its 29.1% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Diving into the nuances of Grid Dynamics’s earnings can give us a better understanding of its performance. A five-year view shows Grid Dynamics has diluted its shareholders, growing its share count by 72.9%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Grid Dynamics, its two-year annual EPS growth of 3.8% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Grid Dynamics reported adjusted EPS of $0.09, down from $0.10 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Grid Dynamics’s full-year EPS of $0.42 to shrink by 1.1%.

Key Takeaways from Grid Dynamics’s Q3 Results

Both revenue and EPS were in line. The company's revenue guidance for next quarter missed but EPS guidance beat. Overall, this was a mixed quarter. The stock remained flat at $7.60 immediately after reporting.

Is Grid Dynamics an attractive investment opportunity right now? 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 for active Edge members.