Virtual events software company (NYSE:ONTF) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue down 3.62% year on year to $47.5 million. However, guidance for the next quarter was less impressive, coming in at $46.2 million at the midpoint, being 4.19% below analyst estimates. ON24 made a GAAP loss of $14.3 million, down on its loss of $9.4 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 FY2022 Highlights:
- Revenue: $47.5 million vs analyst estimates of $47.3 million (small beat)
- EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.16
- Revenue guidance for Q4 2022 is $46.2 million at the midpoint, below analyst estimates of $48.2 million
- Free cash flow was negative $4.18 million, compared to negative free cash flow of $3.35 million in previous quarter
- Gross Margin (GAAP): 72%, down from 75.5% same quarter last year
“In the third quarter, we saw exciting expansions with some of our customers, meaningfully improved our cost structure, and deepened our leadership bench with the appointment of two new go-to-market executives,” 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 strong over the last two years, growing from quarterly revenue of $42.5 million in Q3 FY2020, to $47.5 million.
But this quarter ON24's revenue was down 3.62% year on year, which might be a disappointment to some shareholders.
ON24 is guiding for revenue to decline next quarter 11.2% year on year to $46.2 million, a further deceleration on the 2.34% 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 0.69% over the next twelve months.
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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% in Q3.
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 Q3 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 $346.1 million and more than $341.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We struggled to find many strong positives in these results. On the other hand, revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from ON24. The company is down 1.72% on the results and currently trades at $6.83 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.