Olo (NYSE:OLO) Q3: Beats On Revenue, Provides Optimistic Full-Year Guidance

Kayode Omotosho /
2023/11/06 4:16 pm EST

Restaurant software company (NYSE:OLO) reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 22.3% year on year to $57.8 million. Guidance for next quarter's revenue was also optimistic at $58.8 million at the midpoint, 3.2% above analysts' estimates. Turning to EPS, Olo made a GAAP loss of $0.07 per share, improving from its loss of $0.09 per share in the same quarter last year.

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Olo (OLO) Q3 FY2023 Highlights:

  • Revenue: $57.8 million vs analyst estimates of $56.3 million (2.6% beat)
  • EPS (non-GAAP): $0.04 vs analyst expectations of $0.05 (11.1% miss)
  • Revenue Guidance for Q4 2023 is $58.8 million at the midpoint, above analyst estimates of $56.9 million
  • Free Cash Flow was -$24.4 million compared to -$1.9 million in the previous quarter
  • Net Revenue Retention Rate: 119%, up from 115% in the previous quarter
  • Gross Margin (GAAP): 59.8%, down from 67.7% in the same quarter last year

“In the third quarter, we continued to deliver on our 2023 goals. We generated strong financial results, continued to land and expand with enterprise and emerging enterprise brands, and drove innovation that helps our customers increase sales and provide superior guest experiences,” 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.

Hospitality & Restaurant Software

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 $37.4 million in Q3 FY2021 to $57.8 million this quarter.

Olo Total Revenue

This quarter, Olo's quarterly revenue was once again up a very solid 22.3% year on year. However, its growth did slow down a little compared to last quarter as the company increased revenue by $2.5 million in Q3 compared to $3 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Olo is expecting revenue to grow 18% year on year to $58.8 million, slowing down from the 24.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14% over the next 12 months before the earnings results announcement.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Olo Net Revenue Retention Rate

Olo's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 119% in Q3. This means that even if Olo didn't win any new customers over the last 12 months, it would've grown its revenue by 19%.

Significantly up from the last quarter, Olo has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

Key Takeaways from Olo's Q3 Results

Although Olo, which has a market capitalization of $940.4 million, has been burning cash over the last 12 months, its more than $376.8 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We enjoyed seeing Olo materially improve its net revenue retention rate and average revenue per user this quarter. That shows customers are increasingly adopting more of the company's products. We were also glad it beat analysts' adjusted operating profit and EPS expectations. Next quarter's revenue guidance also came in higher than Wall Street's estimates and it expanded its relationship with FAT Brands, a major restaurant company. On the other hand, its gross margin declined. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is flat after reporting and currently trades at $5.90 per share.

So should you invest in Olo right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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