Bandwidth (NASDAQ:BAND) Q3: Beats On Revenue, Stock Soars

Jack Winthrop /
2022/11/01 4:05 pm EDT

Communications platform as a service company Bandwidth (NASDAQ: BAND) reported results ahead of analyst expectations in the Q3 FY2022 quarter, with revenue up 13.5% year on year to $148.3 million. Guidance for next quarter's revenue was $147 million at the midpoint, which is 1.35% above the analyst consensus. Bandwidth made a GAAP loss of $802 thousand, improving on its loss of $6.94 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 FY2022 Highlights:

  • Revenue: $148.3 million vs analyst estimates of $140.8 million (5.32% beat)
  • EPS (non-GAAP): $0.27 vs analyst estimates of $0.03 ($0.24 beat)
  • Revenue guidance for Q4 2022 is $147 million at the midpoint, above analyst estimates of $145 million
  • Free cash flow of $13.4 million, up from $2.67 million in previous quarter
  • Net Revenue Retention Rate: 109%, down from 112% previous quarter
  • Customers: 3,380, up from 3,362 in previous quarter
  • Gross Margin (GAAP): 42.7%, down from 44.5% same quarter last year

"We exceeded our guidance ranges for the third quarter and raised our full-year outlook on both the top and bottom lines," 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 very strong over the last two years, growing from quarterly revenue of $84.7 million in Q3 FY2020, to $148.3 million.

Bandwidth Total Revenue

This quarter, Bandwidth's quarterly revenue was once again up 13.5% year on year. We can see that the company increased revenue by $11.8 million quarter on quarter. That's a solid improvement on the $5.12 million increase in Q2 2022, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates Bandwidth is expecting revenue to grow 16.5% year on year to $147 million, improving on the 11.5% 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 11.8% 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 3,380 customers at the end of the quarter, an increase of 18 on last quarter. That is a little 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 $300.3 million Bandwidth is among smaller companies, but its more than $311.5 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 were very impressed by Bandwidth’s very strong acceleration in customer growth this quarter. And we were also glad to see the improvement in gross margin. On the other hand, there was a deterioration in revenue retention rate. Overall, we think this was still a strong quarter, that should leave shareholders feeling very positive. The company is up 5.51% on the results and currently trades at $13 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.