ON24 (NYSE:ONTF) Beats Q1 Sales Targets But Full Year Guidance Underwhelms

Radek Strnad /
2022/05/10 4:36 pm EDT

Virtual events software company (NYSE:ONTF) beat analyst expectations in Q1 FY2022 quarter, with revenue down 3.2% year on year to $48.4 million. However, guidance for the next quarter was less impressive, coming in at $47.5 million at the midpoint, being 3.64% below analyst estimates. ON24 made a GAAP loss of $15.4 million, down on its loss of $2.83 million, in the same quarter last year.

Is now the time to buy ON24? Access our full analysis of the earnings results here, it's free.

ON24 (ONTF) Q1 FY2022 Highlights:

  • Revenue: $48.4 million vs analyst estimates of $47.5 million (1.88% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.15
  • Revenue guidance for Q2 2022 is $47.5 million at the midpoint, below analyst estimates of $49.2 million
  • The company dropped revenue guidance for the full year, from $202 million to $193 million at the midpoint, a 4.45% decrease
  • Free cash flow was negative $7.75 million, compared to negative free cash flow of $5.61 million in previous quarter
  • Gross Margin (GAAP): 73.3%, down from 78.6% same quarter last year

“In Q1, we’ve made progress on the key priorities that we’ve laid out for 2022. Looking ahead to the remainder of 2022 and beyond, our strategic growth agenda is focused on evolving our digital engagement platform for a post-pandemic world. We’ve launched two new products in the last two quarters which we believe will be meaningful future growth drivers in expanding our platform and the market opportunity,” said Sharat Sharan, co-founder and CEO of ON24.

Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.

Online marketing and sales are expanding at a rapid pace. Compared to the offline advertising market, which has been affected by the Covid pandemic and is challenging to measure and improve, more organizations are expected to adopt data-driven digital engagement platforms to better engage their customers online.

Sales Growth

As you can see below, ON24's revenue growth has been mediocre over the last year, growing from quarterly revenue of $50 million, to $48.4 million.

ON24 Total Revenue

ON24 is guiding for revenue to decline next quarter 8.86% year on year to $47.5 million, a further deceleration on the 43.4% year-over-year decrease 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 2.92% over the next twelve months.

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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. ON24's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 73.3% in Q1.

ON24 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.

Key Takeaways from ON24's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on ON24’s balance sheet, but we note that with a market capitalization of $548.9 million and more than $359 million in cash, the company has the capacity to continue to prioritise growth over profitability.

ON24 topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that ON24's revenue guidance for the full year missed analyst's expectations and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $10.77 per share.

ON24 may have had a tough quarter, but does that actually create an opportunity to invest 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.