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ON24 (NYSE:ONTF) Posts Better-Than-Expected Sales In Q2 But Full Year Guidance Underwhelms


Jabin Bastian /
2022/08/09 4:36 pm EDT
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Virtual events software company (NYSE:ONTF) reported Q2 FY2022 results beating Wall St's expectations, with revenue down 7.44% year on year to $48.2 million. However, guidance for the next quarter was less impressive, coming in at $47.5 million at the midpoint, being 0.85% below analyst estimates. ON24 made a GAAP loss of $16.2 million, down on its loss of $2.51 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 FY2022 Highlights:

  • Revenue: $48.2 million vs analyst estimates of $47.2 million (2.03% beat)
  • EPS (non-GAAP): -$0.14 vs analyst estimates of -$0.16
  • Revenue guidance for Q3 2022 is $47.5 million at the midpoint, below analyst estimates of $47.9 million
  • The company reconfirmed revenue guidance for the full year, at $193 million at the midpoint
  • Free cash flow was negative $3.35 million, compared to negative free cash flow of $7.75 million in previous quarter
  • Gross Margin (GAAP): 72.4%, down from 77.2% same quarter last year

“In the second quarter, thanks to the hard work of our team, we exceeded our guidance and saw strong expansion activity with a number of our top customers increasing their investments with us,” 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 unimpressive over the last year, growing from quarterly revenue of $52.1 million, to $48.2 million.

ON24 Total Revenue

ON24 is guiding for revenue to decline next quarter 3.77% year on year to $47.5 million, a deceleration on the 15.9% year-over-year increase 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 2.48% over the next twelve months.

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.

Profitability

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 72.4% in Q2.

ON24 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 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 lower 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 Q2 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 $488.6 million and more than $344.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see ON24 outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $10.33 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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