Bandwidth (NASDAQ:BAND) Beats Q2 Sales Targets, Stock Soars

Adam Hejl /
2022/08/03 4:43 pm EDT
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Communications platform as a service company Bandwidth (NASDAQ: BAND) reported Q2 FY2022 results that beat analyst expectations, with revenue up 13.1% year on year to $136.4 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $141 million, 0.18% below analyst estimates. Bandwidth made a GAAP loss of $6.24 million, improving on its loss of $6.92 million, in the same quarter last year.

Is now the time to buy Bandwidth? Access our full analysis of the earnings results here, it's free.

Bandwidth (BAND) Q2 FY2022 Highlights:

  • Revenue: $136.4 million vs analyst estimates of $133.6 million (2.18% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.07 (39% beat)
  • Revenue guidance for Q3 2022 is $141 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $554 million at the midpoint
  • Free cash flow of $2.67 million, up from negative free cash flow of $12.6 million in previous quarter
  • Net Revenue Retention Rate: 112%, in line with previous quarter
  • Customers: 3,362, down from 3,372 in previous quarter
  • Gross Margin (GAAP): 40.5%, down from 45.2% same quarter last year

"I am proud of the operating discipline that enabled us to deliver results that exceeded expectations on both the top and bottom line. Our second quarter results and customer wins demonstrate our execution and focus on serving enterprise customers amidst an uncertain macroeconomic environment," 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.

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 strong over the last year, growing from quarterly revenue of $120.6 million, to $136.4 million.

Bandwidth Total Revenue

This quarter, Bandwidth's quarterly revenue was once again up 13.1% year on year. We can see that revenue increased by $5.12 million in Q2, which was roughly the same as in Q1 2022. This steady quarter-on-quarter growth shows the company is able to maintain its paced growth trajectory.

Guidance for the next quarter indicates Bandwidth is expecting revenue to grow 7.93% year on year to $141 million, slowing down from the 54.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 13.3% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Bandwidth reported 3,362 customers at the end of the quarter, a decrease of 10 on last quarter. That is suggesting that the customer acquisition momentum is slowing a little bit. 

Bandwidth Customers

Key Takeaways from Bandwidth's Q2 Results

With a market capitalization of $457 million Bandwidth is among smaller companies, but its more than $302.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Bandwidth outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see the slowdown in customer growth and gross margin deteriorated. Overall, it seems to us that this was a mixed quarter for Bandwidth. The company is up 5.69% on the results and currently trades at $20.78 per share.

Bandwidth may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable 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 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.