Olo's (NYSE:OLO) Q1 Sales Beat Estimates, Stock Soars

Full Report / May 07, 2024

Restaurant software company (NYSE:OLO) beat analysts' expectations in Q1 CY2024, with revenue up 27.3% year on year to $66.51 million. Guidance for next quarter's revenue was also optimistic at $67.75 million at the midpoint, 2.2% above analysts' estimates. It made a non-GAAP profit of $0.05 per share, improving from its profit of $0.03 per share in the same quarter last year.

Olo (OLO) Q1 CY2024 Highlights:

  • Revenue: $66.51 million vs analyst estimates of $64.27 million (3.5% beat)
  • EPS (non-GAAP): $0.05 vs analyst expectations of $0.05 (in line)
  • Revenue Guidance for Q2 CY2024 is $67.75 million at the midpoint, above analyst estimates of $66.31 million
  • The company lifted its revenue guidance for the full year from $270.5 million to $275.5 million at the midpoint, a 1.8% increase
  • Gross Margin (GAAP): 55.9%, down from 64.1% in the same quarter last year
  • Free Cash Flow of $2.81 million, similar to the previous quarter
  • Net Revenue Retention Rate: 120%, in line with the previous quarter
  • Market Capitalization: $784.3 million

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 Covid pandemic has made online ordering a necessity for restaurants and food retailers. But fully outsourcing online ordering to the popular food delivery apps drastically reduces a restaurant's margins, and building and maintaining your own online ordering system that can reliably handle peak loads is complicated and expensive.

Olo provides restaurant chains with software that can power their apps and websites, and makes it easy for them to offer online ordering directly to their customers. The platform provides the backend infrastructure and restaurants can still design their apps to look the way they want. Through the online dashboard managers can update menus, availability and pricing, and Olo integrates with delivery services, whether in-house or outsourced, so it can automate the whole food ordering process, from the purchase to 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.

Olo competes with digital ordering platforms like Tillster, Onosys, and NovaDine; restaurant-focused POS platforms including NCR Corporation and Xenial; food-delivery companies such as Grubhub (NASDAQ:GRUB), DoorDash (NYSE:DASH), and UberEats.

Sales Growth

As you can see below, Olo's revenue growth has been strong over the last three years, growing from $36.12 million in Q1 2021 to $66.51 million this quarter.

Olo Total Revenue

This quarter, Olo's quarterly revenue was once again up a very solid 27.3% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $3.51 million in Q1 compared to $5.21 million in Q4 CY2023. 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 22.6% year on year to $67.75 million, in line with the 21.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 15.9% over the next 12 months before the earnings results announcement.

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 120% in Q1. This means that even if Olo didn't win any new customers over the last 12 months, it would've grown its revenue by 20%.

Trending up over the last year, 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.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Olo's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 55.9% in Q1.

Olo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.56 left to spend on developing new products, sales and marketing, and general administrative overhead. Olo's gross margin is poor for a SaaS business and it's deteriorated even further over the last year. This is probably the opposite direction that shareholders would like to see it go.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Olo's free cash flow came in at $2.81 million in Q1, down 27.3% year on year.

Olo Free Cash Flow

Olo has burned through $20.73 million of cash over the last 12 months, resulting in a negative 8.5% free cash flow margin. This low FCF margin stems from Olo's constant need to reinvest in its business to stay competitive.

Key Takeaways from Olo's Q1 Results

We enjoyed seeing Olo exceed analysts' billings and revenue expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 9.6% after reporting and currently trades at $5.15 per share.

Is Now The Time?

When considering an investment in Olo, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Olo, we'll be cheering from the sidelines. Although its revenue growth has been strong over the last three years, Wall Street expects growth to deteriorate from here. And while its efficient customer acquisition hints at the potential for strong profitability, the downside is its gross margins show its business model is much less lucrative than the best software businesses. On top of that, its growth is coming at the cost of significant cash burn.

Olo's price-to-sales ratio based on the next 12 months is 2.7x, suggesting the market has lower expectations for the business relative to the hottest tech stocks. While there are some things to like about Olo and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $8.50 right before these results (compared to the current share price of $5.15).

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