ON24 (NYSE:ONTF) Posts Better-Than-Expected Sales In Q3 But Quarterly Guidance Underwhelms

Jabin Bastian /
2021/11/09 4:58 pm EST
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Virtual events software company (NYSE:ONTF) reported Q3 FY2021 results topping analyst expectations, with revenue up 15.9% year on year to $49.3 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $51.5 million, or 1.68% below analyst estimates. ON24 made a GAAP loss of $9.4 million, down on its profit of $6.6 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) Q3 FY2021 Highlights:

  • Revenue: $49.3 million vs analyst estimates of $48 million (2.76% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.08 ($0.05 beat)
  • Revenue guidance for Q4 2021 is $51.5 million at the midpoint, below analyst estimates of $52.3 million
  • Free cash flow was negative $1.6 million, down from positive free cash flow of $5.65 million in previous quarter
  • Gross Margin (GAAP): 75.5%, down from 79.7% same quarter last year

“We delivered a solid third quarter and strengthened our core enterprise customer base. We made steady progress and remain confident in the underlying strength of our business and the large market opportunity that lies ahead for us, although, as expected, we continued to face some headwinds with respect to first time renewals,” 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 $42.5 million, to $49.3 million.

ON24 Total Revenue

This quarter, ON24's quarterly revenue was once again up 15.9% year on year. But the revenue actually decreased by $2.75 million in Q3, compared to $2.01 million increase in Q2 2021. We'd like to see revenue increase each quarter, but a one-off fluctuation is usually not concerning and the management is guiding for growth to rebound in the next quarter.

Analysts covering the company are expecting the revenues to grow 8.66% over the next twelve months, although estimates are likely to change post earnings.

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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 75.5% in Q3.

ON24 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 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 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 Q3 Results

With a market capitalization of $828.5 million ON24 is among smaller companies, but its more than $399.6 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.

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 unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated a little. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $18 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.