Olo (NYSE:OLO) Reports Bullish Q4, Stock Soars
Restaurant software company (NYSE:OLO) reported Q4 FY2023 results topping analysts' expectations , with revenue up 26.6% year on year to $63 million. On top of that, next quarter's revenue guidance ($64.25 million at the midpoint) was surprisingly good and 5.9% above what analysts were expecting. It made a non-GAAP profit of $0.05 per share, improving from its profit of $0.03 per share in the same quarter last year.
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Olo (OLO) Q4 FY2023 Highlights:
Revenue: $63 million vs analyst estimates of $58.86 million (7% beat)
EPS (non-GAAP): $0.05 vs analyst expectations of $0.05 (small miss)
Revenue Guidance for Q1 2024 is $64.25 million at the midpoint, above analyst estimates of $60.68 million
Management's revenue guidance for the upcoming financial year 2024 is $270.5 million at the midpoint, beating analyst estimates by 4.6% and implying 18.5% growth (vs 23% in FY2023)
Free Cash Flow of $2.73 million is up from -$24.39 million in the previous quarter
Net Revenue Retention Rate: 120%, in line with the previous quarter
Gross Margin (GAAP): 57.8%, down from 69.3% in the same quarter last year
Market Capitalization: $963.7 million
“We finished 2023 on a strong note by surpassing the high-end of both fourth-quarter revenue and non-GAAP operating income guidance, alongside notable enterprise deployments and continued product and platform innovation,” said Noah Glass, Olo’s Founder and CEO.
Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE:OLO) provides restaurants and food retailers with software to manage food orders and delivery.
Hospitality & Restaurant Software
Enterprise resource planning (ERP) and customer relationship management (CRM) are two of the largest software categories dominated by the likes of Microsoft, Oracle, and Salesforce.com. Today, the secular trend of mass customization is driving vertical software that customizes ERP and CRM functions for specific industry requirements. Restaurants are a prime example where a set of customized software providers have sprung up in recent years to create unique operating systems that blend tax and accounting software, order management and delivery, along with supply chain management. Hotels and other hospitality providers are another example.
Sales Growth
As you can see below, Olo's revenue growth has been strong over the last two years, growing from $39.96 million in Q4 FY2021 to $63 million this quarter.
This quarter, Olo's quarterly revenue was once again up a very solid 26.6% year on year. On top of that, its revenue increased $5.21 million quarter on quarter, a very strong improvement from the $2.54 million increase in Q3 2023. This is a sign of acceleration of growth and great to see.
Next quarter's guidance suggests that Olo is expecting revenue to grow 23% year on year to $64.25 million, in line with the 22.2% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $270.5 million at the midpoint, growing 18.5% year on year compared to the 23.1% increase in FY2023.
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Product Success
One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
Olo's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 120% in Q4. This means that even if Olo didn't win any new customers over the last 12 months, it would've grown its revenue by 20%.
Trending up over the last year, Olo has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.
Key Takeaways from Olo's Q4 Results
We were impressed by Olo's revenue guidance and rosy outlook, which blew past analysts' expectations. Revenue retention stayed solid and free cash flow turned positive. On the other hand, its gross margin declined. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock is up 8.8% after reporting and currently trades at $6.29 per share.
Olo may have had a good quarter, but does that mean you should 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.
