Bandwidth (NASDAQ:BAND) Surprises With Q3 Sales But Stock Drops
Communications platform as a service company Bandwidth (NASDAQ: BAND) reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 2.49% year on year to $152 million. However, next quarter's revenue guidance of $154 million was less impressive, coming in 2.1% below analysts' estimates. Turning to EPS, Bandwidth made a non-GAAP profit of $0.23 per share, down from its profit of $0.27 per share in the same quarter last year.
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Bandwidth (BAND) Q3 FY2023 Highlights:
Revenue: $152 million vs analyst estimates of $149.1 million (1.96% beat)
EPS (non-GAAP): $0.23 vs analyst estimates of $0.20 (16.5% beat)
Revenue Guidance for Q4 2023 is $154 million at the midpoint, below analyst estimates of $157.3 million
Free Cash Flow of $18.2 million is up from -$1.23 million in the previous quarter
Gross Margin (GAAP): 39.1%, down from 42.8% in the same quarter last year
"We are pleased to announce that we have exceeded both our revenue and profitability guidance for the third quarter and made strong progress towards our goal of growing profitability by 30% for the full year. We look forward to finishing 2023 with strong momentum," said David Morken, Bandwidth's Chief Executive Officer.
Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.
Communications Platform
The first shift towards voice communication over the internet (VOIP), rather than traditional phone networks, happened when the enterprises started replacing business phones with the cheaper VOIP technology. Today, the rise of the consumer internet has increased the need for two way audio and video functionality in applications, driving demand for software tools and platforms that enable this utility.
Sales Growth
As you can see below, Bandwidth's revenue growth has been unremarkable over the last two years, growing from $130.6 million in Q3 FY2021 to $152 million this quarter.
Bandwidth's quarterly revenue was only up 2.49% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $6.14 million in Q3 compared to $8.03 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter, Bandwidth is guiding for a 1.89% year-on-year revenue decline to $154 million, a further deceleration from the 24.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.47% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Key Takeaways from Bandwidth's Q3 Results
With a market capitalization of $270.8 million, Bandwidth is among smaller companies, but its more than $107.4 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
It was encouraging to see Bandwidth narrowly top analysts' revenue expectations this quarter. That really stood out as a positive in these results. On the other hand, its revenue guidance for next quarter underwhelmed and its gross margin shrunk. Overall, this was a mediocre quarter for Bandwidth. The company is down 6.2% on the results and currently trades at $10.13 per share.
Bandwidth may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
