Olo (NYSE:OLO) Q4: Beats On Revenue, Gross Margin Improves

Kayode Omotosho /
2023/02/22 4:12 pm EST
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Restaurant software company (NYSE:OLO) beat analyst expectations in Q4 FY2022 quarter, with revenue up 24.6% year on year to $49.8 million. The company expects that next quarter's revenue would be around $50.8 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Olo made a GAAP loss of $8.23 million, down on its loss of $2.07 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) Q4 FY2022 Highlights:

  • Revenue: $49.8 million vs analyst estimates of $48.6 million (2.39% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.02 ($0.01 beat)
  • Revenue guidance for Q1 2023 is $50.8 million at the midpoint, below analyst estimates of $50.9 million
  • Management's revenue guidance for upcoming financial year 2023 is $214 million at the midpoint, in line with analyst expectations and predicting 15.4% growth (vs 24.1% in FY2022)
  • Free cash flow was negative $1.6 million, down from positive free cash flow of $1.35 million in previous quarter
  • Net Revenue Retention Rate: 108%, in line with previous quarter
  • Gross Margin (GAAP): 69.3%, down from 79% same quarter last year

“In 2022, Olo increasingly became the platform that restaurant brands rely on to make their digital priorities a reality,” 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.

Sales Growth

As you can see below, Olo's revenue growth has been very strong over the last two years, growing from quarterly revenue of $30.5 million in Q4 FY2020, to $49.8 million.

Olo Total Revenue

This quarter, Olo's quarterly revenue was once again up a very solid 24.6% year on year. On top of that, revenue increased $2.52 million quarter on quarter, a very strong improvement on the $1.67 million increase in Q3 2022, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Olo is expecting revenue to grow 18.7% year on year to $50.8 million, in line with the 18.4% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $214 million at the midpoint, growing 15.4% compared to 24.1% increase in FY2022.

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 108% in Q4. That means even if they didn't win any new customers, Olo would have grown its revenue 8% year on year. That is a decent retention rate and it shows us that not only Olo's customers stick around but at least some of them get increasing value from its software over time.

Key Takeaways from Olo's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Olo’s balance sheet, but we note that with a market capitalization of $1.29 billion and more than $448.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Olo improve their gross margin this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and the revenue guidance for the next quarter slightly missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $8.11 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.