ON24 (NYSE:ONTF) Reports Upbeat Q3, Stock Soars
Virtual events software company (NYSE:ONTF) reported Q3 FY2023 results beating Wall Street analysts' expectations , with revenue down 17.6% year on year to $39.2 million. On top of that, next quarter's revenue guidance ($37.3 million at the midpoint) was 5.4% above what analysts were expecting. Turning to EPS, ON24 made a GAAP loss of $0.26 per share, improving from its loss of $0.30 per share in the same quarter last year.
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ON24 (ONTF) Q3 FY2023 Highlights:
Revenue: $39.2 million vs analyst estimates of $38 million (3.3% beat)
EPS (non-GAAP): $0.03 vs analyst estimates of $0.0 ($0.03 beat)
Revenue Guidance for Q4 2023 is $37.3 million at the midpoint, above analyst estimates of $35.4 million
Free Cash Flow was -$3.2 million compared to -$4.9 million in the previous quarter
Gross Margin (GAAP): 72.3%, in line with the same quarter last year
“We are pleased with our performance for the third quarter. We delivered results ahead of guidance across all metrics, and despite the tough macroeconomic environment, we see positive momentum in our business. We are focused on executing against our strategic growth pillars, and are excited to be launching ACE, our new AI-powered Analytics and Content Engine. ACE will be available across our platform and will fuel the next generation of our customers’ experiences,” said Sharat Sharan, co-founder and CEO of ON24.
Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.
Virtual Events Software
Online marketing and sales are expanding at a rapid pace. Compared to the offline advertising market, which has been affected by the Covid pandemic and is challenging to measure and improve, more organizations are expected to adopt data-driven digital engagement platforms to better engage their customers online.
Sales Growth
As you can see below, ON24's revenue has been declining over the last two years, shrinking from $49.4 million in Q3 FY2021 to $39.2 million this quarter.
ON24's revenue was down again this quarter, falling 17.6% year on year.
Next quarter, ON24 is guiding for a 19.9% year-on-year revenue decline to $37.3 million, a further deceleration from the 10.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street was expecting revenue to decline 14.6% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its 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.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. ON24's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 72.3% in Q3.
That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, sales and marketing, and general administrative overhead. ON24's gross margin is lower than that of a typical SaaS businesses and its decline over the last year is putting it in an even deeper hole. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Key Takeaways from ON24's Q3 Results
Although ON24, which has a market capitalization of $274.4 million, has been burning cash over the last 12 months, its more than $213.7 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We were impressed by ON24's revenue guidance and rosy outlook for next quarter, which blew past analysts' expectations. On the other hand, its gross margin fell. Overall, we think this was a good quarter that could please shareholders. The stock is up 6.4% after reporting and currently trades at $6.85 per share.
ON24 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.
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The author has no position in any of the stocks mentioned in this report.
