Online survey platform Momentive (NASDAQ:MNTV) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 1.57% year on year to $118.8 million. Momentive made a GAAP loss of $23.8 million, improving on its loss of $37.4 million, in the same quarter last year.
Momentive (MNTV) Q1 FY2023 Highlights:
- Revenue: $118.8 million vs analyst estimates of $119 million (small miss)
- EPS (non-GAAP): $0.08 vs analyst estimates of $0.05 ($0.03 beat)
- Free cash flow was negative $10 million, down from positive free cash flow of $6.62 million in previous quarter
- Customers: 878,600, down from 887,400 in previous quarter
- Gross Margin (GAAP): 82.7%, up from 80.7% 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.
As you can see below, Momentive's revenue growth has been unremarkable over the last two years, growing from quarterly revenue of $102.3 million in Q1 FY2021, to $118.8 million.
Momentive's quarterly revenue was only up 1.57% year on year, which might disappoint some shareholders. But the revenue actually decreased by $3.57 million in Q1, compared to $1.02 million increase in Q4 2022. If we take a closer look, we'll observe a similar revenue decline in the same quarter last year, which could suggest the decline is seasonal. However, the management is guiding for a further drop in revenue in the next quarter, so it is definitely worth keeping an eye on the situation.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 4.81% over the next twelve months.
You can see below that Momentive reported 878,600 customers at the end of the quarter, a decrease of 8800 on last quarter. That is suggesting that the customer acquisition momentum is slowing a little bit. That is better customer growth than last quarter but while it is still quite a bit below what we have typically seen over the last year, it is suggesting that the company may be reinvigorating growth.
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 82.7% in Q1.
That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still 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 burned through $10 million in Q1, increasing the cash burn by 26.8% year on year.
Momentive has burned through $1.97 million in cash over the last twelve months, resulting in a negative 0.41% 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 Q1 Results
With a market capitalization of $1.41 billion Momentive is among smaller companies, but its more than $199.1 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 good to see that Momentive’s customer growth is staying on a steady trajectory. On the other hand, revenue growth was quite weak and gross margin deteriorated a little. Free cash flow also missed. Overall, it seems to us that this was a complicated quarter for Momentive. The company is flat on the results and currently trades at $9.38 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 cheer for everyone who is making the lives of others easier through technology, but in case of Momentive we will be cheering from the sidelines. Its revenue growth has been weak, and analysts expect growth rates to deteriorate from there. And while its impressive gross margins are indicative of excellent business economics, unfortunately customer acquisition is less efficient than many comparable companies.
Momentive's price to sales ratio based on the next twelve months is 2.8x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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