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Momentive (NASDAQ:MNTV) Misses Q2 Sales Targets, Stock Drops


Full Report / August 04, 2022
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Online survey platform Momentive (NASDAQ:MNTV) missed analyst expectations in Q2 FY2022 quarter, with revenue up 9.84% year on year to $120.1 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $121 million at the midpoint, or 4.71% below analyst estimates. Momentive made a GAAP loss of $28.5 million, improving on its loss of $29.2 million, in the same quarter last year.

Momentive (MNTV) Q2 FY2022 Highlights:

  • Revenue: $120.1 million vs analyst estimates of $121.3 million (1.01% miss)
  • EPS (non-GAAP): $0 vs analyst estimates of $0.01 ($0.01 miss)
  • Revenue guidance for Q3 2022 is $121 million at the midpoint, below analyst estimates of $126.9 million
  • The company dropped revenue guidance for the full year, from $497 million to $482 million at the midpoint, a 3.01% decrease
  • Free cash flow of $1.25 million, up from negative free cash flow of $7.9 million in previous quarter
  • Customers: 909,700, up from 894,400 in previous quarter
  • Gross Margin (GAAP): 81.2%, up from 80.1% 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 year, growing from quarterly revenue of $109.3 million, to $120.1 million.

Momentive Total Revenue

Momentive's quarterly revenue was only up 9.84% year on year, which would likely disappoint many shareholders. On top of that, revenue increased $3.17 million quarter on quarter, a strong improvement on the $356 thousand decrease in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Momentive is expecting revenue to grow 5.44% year on year to $121 million, slowing down from the 20.2% 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 14.4% over the next twelve months.

Customer Growth

You can see below that Momentive reported 909,700 customers at the end of the quarter, an increase of 15,300 on last quarter. That is a little better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

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 81.2% in Q2.

Momentive Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 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 $1.25 million in Q2, down 94.7% year on year.

Momentive Free Cash Flow

Momentive has generated $3.11 million in free cash flow over the last twelve months, 0.66% 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 Q2 Results

With a market capitalization of $1.3 billion Momentive is among smaller companies, but its more than $209.4 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 were very impressed by Momentive’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, it was unfortunate to see that Momentive's revenue guidance for the full year missed analyst's expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Momentive. The company is down 8.98% on the results and currently trades at $7.8 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. We think Momentive is a solid business. However, its revenue growth has been weak, and analysts believe that rate will remain roughly steady. But on a positive note, its very efficient customer acquisition hints at the potential for strong profitability, and its impressive gross margins are indicative of excellent business economics.

Momentive's price to sales ratio based on the next twelve months is 2.4x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Momentive and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $19.1 per share right before these results, implying that they saw upside in buying Momentive even in the short term.

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