Bandwidth (NASDAQ:BAND) Posts Better-Than-Expected Sales In Q3 But Quarterly Guidance Underwhelms

Adam Hejl /
2021/11/08 4:31 pm EST
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Communications platform as a service company Bandwidth (NASDAQ: BAND) reported Q3 FY2021 results topping analyst expectations, with revenue up 54.1% year on year to $130.6 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $118.2 million, or 5.81% below S&P analyst estimates consensus. Bandwidth made a GAAP loss of $6.94 million, down on its loss of $2.35 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) Q3 FY2021 Highlights:

  • Revenue: $130.6 million vs analyst estimates of $126 million (3.61% beat)
  • EPS (non-GAAP): $0.25 vs analyst estimates of $0.08 ($0.17 beat)
  • Revenue guidance for Q4 2021 is $118.2 million at the midpoint, below analyst estimates of $125.4 million
  • Free cash flow of $12.1 million, up from negative free cash flow of -$18.95 million in previous quarter
  • Net Revenue Retention Rate: 108%, down from 114% previous quarter
  • Customers: 3,173, up from 3,051 in previous quarter
  • Gross Margin (GAAP): 44.5%, down from 46.2% same quarter last year

"Bandwidth continues to play a critical role in the enterprise move to the cloud," 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 shift towards communication over the internet (VOIP), rather than traditional phone networks, is a big tailwind behind the demand for services like Bandwith.

Sales Growth

As you can see below, Bandwidth's revenue growth has been incredible over the last year, growing from quarterly revenue of $84.7 million, to $130.6 million.

Bandwidth Total Revenue

This was another standout quarter with the revenue up a splendid 54.1% year on year. On top of that, revenue increased $9.98 million quarter on quarter, a very strong improvement on the $7.17 million increase in Q2 2021, and a sign of re-acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 15.5% over the next twelve months, although estimates are likely to change post earnings.

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 400% since the IPO in December. You can find it on our platform for free.

Customer Growth

You can see below that Bandwidth reported 3,173 customers at the end of the quarter, an increase of 122 on last quarter. That is quite a bit better customer growth than last quarter but while it is still a bit below what we have typically seen over the last year, it is suggesting that the company may be reinvigorating growth.

Bandwidth Customers

Key Takeaways from Bandwidth's Q3 Results

With a market capitalization of $2.12 billion Bandwidth is among smaller companies, but its more than $321.8 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We were impressed by the exceptional revenue growth Bandwidth delivered this quarter. And we were also glad to see the acceleration in customer growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue retention rate deteriorated. Overall, this quarter's results could have been better. The company is up 1.2% on the results and currently trades at $84 per share.

Should you invest in Bandwidth 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.