Olo (NYSE:OLO) Posts Better-Than-Expected Sales In Q1, Stock Soars

Adam Hejl /
2023/05/09 4:22 pm EDT

Restaurant software company (NYSE:OLO) beat analyst expectations in Q1 FY2023 quarter, with revenue up 22.2% year on year to $52.2 million. Guidance for next quarter's revenue was $53.3 million at the midpoint, 3.24% above the average of analyst estimates. Olo made a GAAP loss of $13.7 million, down on its loss of $11.5 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) Q1 FY2023 Highlights:

  • Revenue: $52.2 million vs analyst estimates of $50.8 million (2.92% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.01 ($0.02 beat)
  • Revenue guidance for Q2 2023 is $53.3 million at the midpoint, above analyst estimates of $51.6 million
  • The company lifted revenue guidance for the full year, from $214 million to $216.6 million at the midpoint, a 1.19% increase
  • Free cash flow of $3.87 million, up from negative free cash flow of $1.6 million in previous quarter
  • Net Revenue Retention Rate: 114%, up from 108% previous quarter
  • Gross Margin (GAAP): 64.1%, down from 70.1% same quarter last year

“During the first quarter, we generated $52.2 million in total revenue, a 22% increase year-over-year, as our platform saw continued momentum in average revenue per unit growth with increased module adoption within our existing customer base and new customers deploying with multi-modules,” said Noah Glass, Olo’s 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.

Enterprise resource planning (ERP) and customer relationship management (CRM) are two of the largest software categories dominated by the likes of Microsoft, Oracle, and Salesforce.com. Today, the secular trend of mass customization is driving vertical software that customizes ERP and CRM functions for specific industry requirements. Restaurants are a prime example where a set of customized software providers have sprung up in recent years to create unique operating systems that blend tax and accounting software, order management and delivery, along with supply chain management. Hotels and other hospitality providers are another example.

Sales Growth

As you can see below, Olo's revenue growth has been strong over the last two years, growing from quarterly revenue of $36.1 million in Q1 FY2021, to $52.2 million.

Olo Total Revenue

This quarter, Olo's quarterly revenue was once again up a very solid 22.2% year on year. Quarter on quarter the revenue increased by $2.46 million in Q1, which was in line with Q4 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates Olo is expecting revenue to grow 16.8% year on year to $53.3 million, slowing down from the 27% 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 13.9% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 114% in Q1. That means even if they didn't win any new customers, Olo would have grown its revenue 14% year on year. Significantly up from the last quarter, this 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 Q1 Results

With a market capitalization of $1.1 billion Olo is among smaller companies, but its more than $422.2 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 the strong improvements in Olo’s revenue retention rate. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 8.81% on the results and currently trades at $7.41 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.