Olo (NYSE:OLO) Delivers Impressive Q2, Upgrades Full Year Guidance

Adam Hejl /
2021/08/10 4:30 pm EDT

Restaurant software company (NYSE:OLO) beat analyst expectations in Q2 FY2021 quarter, with revenue up 47.6% year on year to $35.8 million. Olo made a GAAP loss of $2.43 million, down on its profit of $3.93 million, in the same quarter last year.

Is now the time to buy Olo? Access our full analysis of the earnings results here, it's free.

Olo (OLO) Q2 FY2021 Highlights:

  • Revenue: $35.8 million vs analyst estimates of $34.1 million (5.03% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.01 ($0.02 beat)
  • Revenue guidance for Q3 2021 is $36.2 million at the midpoint, above analyst estimates of $34.5 million
  • The company lifted revenue guidance for the full year, from $141.1 million to $145.2 million at the midpoint, a 2.86% increase
  • Free cash flow of $10.7 million, up 167% from previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Gross Margin (GAAP): 79.4%, down from 81% previous quarter

“The second quarter was another strong quarter of profitable growth for Olo. Restaurant digital sales proved durable during the second quarter, demonstrating that the restaurant industry’s digital transformation is not just about delivery but all ordering modes. We are excited that Olo’s platform is enabling restaurant brands to digitize every transaction, not just delivery transactions,” said Noah Glass, Olo’s Founder and CEO.

Founded in 2005, Olo (NYSE:OLO) provides restaurants and food retailers with software to manage food orders and delivery.

The online commerce and food ordering market has been growing fast even before the covid and the pandemic has only accelerated it. But restaurants are not in the software development business and building an online ordering system is difficult and expensive. And so similarly as we have seen in other sectors of the economy, there is a demand for modern, cloud-based software as a service platforms that can power restaurant’s online food ordering systems, without them having to maintain it on their own.

Sales Growth

As you can see below, Olo's revenue growth has been incredible over the last year, growing from quarterly revenue of $24.3 million, to $35.8 million.

Olo Total Revenue

And unsurprisingly, this was another great quarter for Olo with revenue up an absolutely stunning 47.6% year on year. But the revenue actually decreased by $227 thousand in Q2, compared to $5.57 million increase in Q1 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.

Analysts covering the company are expecting the revenues to grow 19.8% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Olo Net Revenue Retention Rate

Olo's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 120% in Q2. That means even if they didn't win any new customers, Olo would have grown its revenue 20% year on year. That is a good retention rate and a proof that Olo's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Key Takeaways from Olo's Q2 Results

With market capitalisation of $5.6 billion Olo is among smaller companies, but its more than $575.2 million in cash and positive free cash flow over the last twelve months give us confidence that Olo has the resources it needs to pursue a high growth business strategy.

We were impressed by the very optimistic revenue guidance Olo provided for the next quarter. And we were also excited to see the really strong revenue growth. On the other hand, there was a deterioration in gross margin. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is down 4.65% on the results and currently trades at $35.7 per share.

Olo may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our full report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.