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Momentive (NASDAQ:MNTV) Reports Q1 In Line With Expectations, Stock Soars


Full Report / May 04, 2022
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Online survey platform Momentive (NASDAQ:MNTV) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 14.3% year on year to $116.9 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $121 million, 0.47% below analyst estimates. Momentive made a GAAP loss of $37.3 million, down on its loss of $29.6 million, in the same quarter last year.

Momentive (MNTV) Q1 FY2022 Highlights:

  • Revenue: $116.9 million vs analyst estimates of $116 million (small beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.02 ($0.02 beat)
  • Revenue guidance for Q2 2022 is $121 million at the midpoint, below analyst estimates of $121.5 million
  • Free cash flow was negative $7.9 million, compared to negative free cash flow of $4.88 million in previous quarter
  • Customers: 894,400, up from 888,700 in previous quarter
  • Gross Margin (GAAP): 80.4%, in line with 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 $102.2 million, to $116.9 million.

Momentive Total Revenue

This quarter, Momentive's quarterly revenue was once again up 14.3% year on year. But the revenue actually decreased by $356 thousand in Q1, compared to $2.58 million increase in Q4 2021. We'd like to see revenue increase each quarter, but a one-off fluctuation is usually not concerning and the management is guiding for growth to rebound in the next quarter.

Guidance for the next quarter indicates Momentive is expecting revenue to grow 10.6% 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 12.3% over the next twelve months.

Customer Growth

You can see below that Momentive reported 894,400 customers at the end of the quarter, an increase of 5,700 on last quarter. That's in line with the customer growth we have seen last quarter but a bit below what we have typically seen over the last year, suggesting that sales momentum may be slowing a little.

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 80.4% in Q1.

Momentive Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.80 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 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 burned through $7.9 million in Q1, with cash flow turning negative year on year.

Momentive Free Cash Flow

Momentive has generated $25.6 million in free cash flow over the last twelve months, a decent 5.59% of revenues. This FCF margin is a result of Momentive asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.

Key Takeaways from Momentive's Q1 Results

With a market capitalization of $2.2 billion Momentive is among smaller companies, but its more than $238 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Momentive's results Q1 are showing the company is staying on target. The company is up 5.17% on the results and currently trades at $15.05 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 mediocre, and analysts expect growth rates to deteriorate from there. 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 4.2x, 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 $27.7 per share right before these results, implying that they saw upside in buying Momentive even in the short term.

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