ON24 (NYSE:ONTF) Q1 Sales Beat Estimates But Full Year Guidance Underwhelms

Kayode Omotosho /
2023/05/09 4:33 pm EDT

Virtual events software company (NYSE:ONTF) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue down 11.2% year on year to $43.1 million. The company expects that next quarter's revenue would be around $41.6 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. ON24 made a GAAP loss of $17.6 million, down on its loss of $15.5 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 FY2023 Highlights:

  • Revenue: $43.1 million vs analyst estimates of $42.5 million (1.24% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.07
  • Revenue guidance for Q2 2023 is $41.6 million at the midpoint, roughly in line with what analysts were expecting
  • The company dropped revenue guidance for the full year, from $167.5 million to $163.5 million at the midpoint, a 2.39% decrease
  • Free cash flow was negative $4.35 million, compared to negative free cash flow of $8.87 million in previous quarter
  • Gross Margin (GAAP): 69.3%, down from 73.3% same quarter last year

“I am pleased with our first quarter results and the progress we have made accelerating our path to profitability. We are on track to reach break-even non-GAAP EPS by Q2 and are now targeting break-even non-GAAP EBITDA by Q4 2023, with continued improvement in the quarters ahead,” 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

ON24 Total Revenue

But this quarter ON24's revenue was down 11.2% year on year, which might be a disappointment to some shareholders.

ON24 is guiding for revenue to decline next quarter 13.8% year on year to $41.6 million, a further deceleration on the 7.44% year-over-year decrease in revenue the company had recorded in the same quarter last year. Before the earnings results were announced, Wall St analysts covering the company were estimating revenues to decline 11.3% 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 69.3% in Q1.

ON24 Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

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 $388.6 million and more than $315.7 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 analysts' expectations and gross margin deteriorated. Overall, this quarter's results could have been better. The company is up 1.16% on the results and currently trades at $8.7 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.