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Momentive (NASDAQ:MNTV) Reports Q3 In Line With Expectations But Guidance Misses Estimates


Full Report / November 03, 2022
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Online survey platform Momentive (NASDAQ:MNTV) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 5.76% year on year to $121.3 million. However, guidance for the next quarter was less impressive, coming in at $121 million at the midpoint, being 2.59% below analyst estimates. Momentive made a GAAP loss of $20.3 million, improving on its loss of $22.9 million, in the same quarter last year.

Momentive (MNTV) Q3 FY2022 Highlights:

  • Revenue: $121.3 million vs analyst estimates of $121 million (small beat)
  • EPS (non-GAAP): $0.04 vs analyst estimates of $0.04 
  • Revenue guidance for Q4 2022 is $121 million at the midpoint, below analyst estimates of $124.2 million
  • Free cash flow of $177 thousand, down 85.8% from previous quarter
  • Customers: 897,500, down from 909,700 in previous quarter
  • Gross Margin (GAAP): 82.4%, up from 80.6% same quarter last year

Previously known as SurveyMonkey, Momentive (NASDAQ:MNTV) offers software as a service that makes it easy for users create, manage and distribute online surveys.

The story of Momentive (formerly SurveyMonkey) starts in the the '90s when the co-founder Ryan Finley got tasked by the marketing department of the company he was working for to create a survey and send it to their customers. The frustrating experience of using the tools then available led him to quit his job and start a new company.

Is the software we are building something people actually want? How will customers respond to our new marketing campaign? Are my employees satisfied? Answers to questions like these are critical to success of many businesses and SurveyMonkey makes it easy for people to get feedback by enabling them to create surveys, quizzes, and polls and automatically analyze the results. The company offers hundreds of templates with focus on product, market and employee feedback and also allows customers to design their own survey. SurveyMonkey can source the survey respondents and provide guidance with research methodology to make sure that the results will be useful.

Surveys are naturally a viral product and SurveyMonkey actively leverages that as a part of their customer acquisition strategy. The company adds its branding into the surveys, with the aim of turning some of the survey respondents into SurveyMonkey customers themselves.

The Internet has given customers more choice on whom to conduct business with and has also given them the power to easily share their experiences with other customers. These twin dynamics effectively have increased pressure on companies to both improve their customer service and also monitor their brand reputation online, driving the need for customer experience software offerings.

Momentive competes with Qualtrics (NASDAQ:XM), Medallia, Google Forms and a range of smaller companies like Typeform.

Sales Growth

As you can see below, Momentive's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $95.4 million in Q3 FY2020, to $121.3 million.

Momentive Total Revenue

Momentive's quarterly revenue was only up 5.76% year on year, which might disappoint some shareholders. But the growth did slow down compared to last quarter, as the revenue increased by just $1.21 million in Q3, compared to $3.17 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Momentive is expecting revenue to grow 3.11% year on year to $121 million, slowing down from the 16.2% 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 9.05% over the next twelve months.

Customer Growth

You can see below that Momentive reported 897,500 customers at the end of the quarter, a decrease of 12200 on last quarter. That is suggesting that the customer acquisition momentum is slowing a little bit. That is slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Momentive Customers

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. Momentive's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 82.4% in Q3.

Momentive Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a great gross margin, that allows companies like Momentive to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Momentive's free cash flow came in at $177 thousand in Q3, down 98.7% year on year.

Momentive Free Cash Flow

Momentive has burned through $11.3 million in cash over the last twelve months, resulting in a negative 2.38% free cash flow margin. This below average FCF margin is a result of Momentive's need to invest in the business to continue penetrating its market.

Key Takeaways from Momentive's Q3 Results

With a market capitalization of $1.1 billion Momentive is among smaller companies, but its more than $193 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.

It was nice that Momentive improved their gross margin, even if just slightly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in customer growth. Overall, it seems to us that this was a complicated quarter for Momentive. The company is up 2.54% on the results and currently trades at $7.24 per share.

Is Now The Time?

Momentive may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Momentive is not a bad business. However, its revenue growth has been weak, and analysts expect growth rates to deteriorate from there. But on a positive note, its impressive gross margins are indicative of excellent business economics.

Momentive's price to sales ratio based on the next twelve months is 2.0x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. In the end, beauty is in the eye of the beholder. While Momentive wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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