Online survey platform Momentive (NASDAQ:MNTV) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 4.3% year on year to $122.4 million. Momentive made a GAAP loss of $3.63 million, improving on its loss of $41.5 million, in the same quarter last year.
Momentive (MNTV) Q4 FY2022 Highlights:
- Revenue: $122.4 million vs analyst estimates of $121.3 million (0.9% beat)
- EPS (non-GAAP): $0.14 vs analyst estimates of $0.10 (40% beat)
- Free cash flow of $6.62 million, up from $177 thousand in previous quarter
- Customers: 887,400, down from 897,500 in previous quarter
- Gross Margin (GAAP): 84%, down from 92.3% same quarter last year
- For the first quarter of 2023, Momentive expects revenue growth 0% to 2% (year-over-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.
As you can see below, Momentive's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $101 million in Q4 FY2020, to $122.4 million.
Momentive's quarterly revenue was only up 4.3% year on year, which might disappoint some shareholders. And the growth did slow down a little compared to last quarter, as Momentive increased revenue by $1.02 million in Q4, compared to $1.21 million revenue add in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
You can see below that Momentive reported 887,400 customers at the end of the quarter, a decrease of 10100 on last quarter. That is suggesting that the customer acquisition momentum is slowing a little bit.
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 84% in Q4.
That means that for every $1 in revenue the company had $0.84 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 have followed 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 $6.62 million in Q4, turning positive year on year.
Momentive has generated $147 thousand in free cash flow over the last twelve months, 0.03% of revenues. This FCF margin is a result of Momentive asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.
Key Takeaways from Momentive's Q4 Results
With a market capitalization of $1.22 billion Momentive is among smaller companies, but its more than $202.8 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 Momentive improve their gross margin this quarter. On the other hand, revenue growth was quite weak and the number of customers declined. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 3.44% on the results and currently trades at $8.11 per share.
Is Now The Time?
When considering Momentive, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. 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 2.2x, 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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