Restaurant software company (NYSE:OLO) reported Q3 FY2021 results topping analyst expectations, with revenue up 35.9% year on year to $37.3 million. Guidance for next quarter's revenue was $39 million at the midpoint, 5.45% above the average of analyst estimates. Olo made a GAAP loss of $11.3 million, down on its profit of $5.1 million, in the same quarter last year.
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Olo (OLO) Q3 FY2021 Highlights:
- Revenue: $37.3 million vs analyst estimates of $36.3 million (2.91% beat)
- EPS (non-GAAP): $0.03 vs analyst estimates of $0.02 (50% beat)
- Revenue guidance for Q4 2021 is $39 million at the midpoint, above analyst estimates of $37 million
- Free cash flow of $10.2 million, roughly flat from previous quarter
- Net Revenue Retention Rate: 120%, in line with previous quarter
- Gross Margin (GAAP): 78.1%, down from 82.6% same quarter last year
“In the third quarter, Olo’s strong revenue growth and profitability momentum continued as Olo took meaningful strides toward our vision of digital entirety: touching, adding value to, and deriving revenue from every restaurant transaction,” said Noah Glass, Founder and CEO.
Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, 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 $27.5 million, to $37.3 million.
And unsurprisingly, this was another great quarter for Olo with revenue up an absolutely stunning 35.9% year on year. On top of that, revenue increased $1.49 million quarter on quarter, a strong improvement on the $227 thousand decrease in Q2 2021, and a sign of acceleration of growth, which is very nice to see indeed.
Analysts covering the company are expecting the revenues to grow 22.9% over the next twelve months, although estimates are likely to change post earnings.
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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'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 Q3. That means even if they didn't win any new customers, Olo would have grown its revenue 20% year on year. Despite it going down over the last year this is still 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 Q3 Results
With a market capitalization of $4.44 billion Olo is among smaller companies, but its more than $597.7 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 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 a strong quarter, that should leave shareholders feeling very positive. The company is up 7.62% on the results and currently trades at $32.2 per share.
Should you invest in Olo 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 actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.