ON24 (NYSE:ONTF) Beats Q2 Sales Targets But Stock Drops 11%

Kayode Omotosho /
2021/08/10 4:17 pm EDT

Virtual events software company (NYSE:ONTF) reported Q2 FY2021 results that beat analyst expectations, with revenue up 43.4% year on year to $52.1 million. ON24 made a GAAP loss of $2.51 million, down on its profit of $5.27 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) Q2 FY2021 Highlights:

  • Revenue: $52.1 million vs analyst estimates of $51 million (2.06% beat)
  • EPS (non-GAAP): $0.04 vs analyst estimates of $0 ($0.04 beat)
  • Revenue guidance for Q3 2021 is $48 million at the midpoint, below analyst estimates of $51.1 million
  • The company dropped revenue guidance for the full year, from $209 million to $202.7 million at the midpoint, a 3.01% decrease
  • Free cash flow of $5.65 million, up 77.6% from previous quarter
  • Gross Margin (GAAP): 77.2%, down from 78.6% previous quarter

“Total revenue in the second quarter of 2021 grew 43% year-over-year, and our subscription and other platform revenue, excluding legacy, grew 68% year-over-year,” 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 incredible over the last year, growing from quarterly revenue of $36.3 million, to $52.1 million.

ON24 Total Revenue

And unsurprisingly, this was another great quarter for ON24 with revenue up an absolutely stunning 43.4% year on year. On top of that, revenue increased $2.01 million quarter on quarter, a strong improvement on the $3.18 million decrease in Q1 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 14.8% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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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, licences, technical support and other necessary running expenses was at 77.2% in Q2.

ON24 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.77 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like ON24 to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from ON24's Q2 Results

With market capitalisation of $1.5 billion ON24 is among smaller companies, but its more than $396.3 million in cash and positive free cash flow over the last twelve months give us confidence that ON24 has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth ON24 delivered this quarter. And we were also excited to see it that it outperformed analysts' revenue expectations this quarter. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue guidance for the full year was downgraded. Overall, this quarter's results could have been better. The company is down 11.3% on the results and currently trades at $28.6 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 full report which you can read here, it's free.

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