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Bandwidth (NASDAQ:BAND) Exceeds Q4 Expectations But Stock Drops On Weak Guidance


Adam Hejl /
2022/02/23 4:36 pm EST
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Communications platform as a service company Bandwidth (NASDAQ: BAND) announced better-than-expected results in the Q4 FY2021 quarter, with revenue up 11.5% year on year to $126.1 million. However, guidance for the next quarter was less impressive, coming in at $126 million at the midpoint, being 2.82% below analyst estimates. Bandwidth made a GAAP loss of $8.17 million, improving on its loss of $19.9 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) Q4 FY2021 Highlights:

  • Revenue: $126.1 million vs analyst estimates of $118.1 million (6.72% beat)
  • EPS (non-GAAP): -$0.33 vs analyst estimates of -$0.13 (-$0.20 miss)
  • Revenue guidance for Q1 2022 is $126 million at the midpoint, below analyst estimates of $129.6 million
  • Management's revenue guidance for upcoming financial year 2022 is $551 million at the midpoint, missing analyst estimates by 3.27% and predicting 12.2% growth (vs 47.1% in FY2021)
  • Free cash flow of $8.26 million, down 32.1% from previous quarter
  • Net Revenue Retention Rate: 110%, in line with previous quarter
  • Customers: 3,228, up from 3,173 in previous quarter
  • Gross Margin (GAAP): 42.4%, down from 45.9% same quarter last year

"I am very pleased with our strategic, operational and financial achievements in 2021. We helped customers unlock the potential of the cloud, deepened existing relationships and rose to the challenge of DDoS, all while delivering strong financial results," stated David Morken, Chief Executive Officer of Bandwidth.

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 impressive over the last year, growing from quarterly revenue of $113 million, to $126.1 million.

Bandwidth Total Revenue

This quarter, Bandwidth's quarterly revenue was once again up 11.5% year on year. But the revenue actually decreased by $4.5 million in Q4, compared to $9.98 million increase in Q3 2021.

Guidance for the next quarter indicates Bandwidth is expecting revenue to grow 11% year on year to $126 million, slowing down from the 65.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $551 million at the midpoint, growing 12.2% compared to 47.1% increase in FY2021.

There are others doing even better than Bandwidth. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Customer Growth

You can see below that Bandwidth reported 3,228 customers at the end of the quarter, an increase of 55 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Bandwidth Customers

Key Takeaways from Bandwidth's Q4 Results

With a market capitalization of $1.27 billion Bandwidth is among smaller companies, but its more than $331.4 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We liked to see that Bandwidth beat analysts’ revenue expectations pretty strongly this quarter. And we were also glad to see the improvement in net revenue retention rate. On the other hand, it was unfortunate to see that Bandwidth's revenue guidance for the full year miss analyst's expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, it seems to us that this was a complicated quarter for Bandwidth. The company is down 7.38% on the results and currently trades at $43 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.