Virtual events software company (NYSE:ONTF) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 12.4% year on year to $37.73 million. The company expects next quarter's revenue to be around $36.3 million, in line with analysts' estimates. It made a non-GAAP profit of $0.02 per share, improving from its loss of $0.04 per share in the same quarter last year.
ON24 (ONTF) Q1 CY2024 Highlights:
- Revenue: $37.73 million vs analyst estimates of $37 million (2% beat)
- EPS (non-GAAP): $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
- Revenue Guidance for Q2 CY2024 is $36.3 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $145 million at the midpoint
- Gross Margin (GAAP): 74.1%, up from 71.3% in the same quarter last year
- Free Cash Flow of $1.1 million is up from -$1.97 million in the previous quarter
- Market Capitalization: $286.5 million
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.
The Covid-19 pandemic has accelerated the shift to a digital-first world. Given the growing difficulty of organizing physical meetings, more companies are adopting digital channels to engage with customers and are realizing it is harder than just video streaming a presentation. One directional online webinars are missing the interactivity of real world conferences and potential customers either give up during the stream or leave without being able to engage anybody from the company to ask questions.
ON24’s software as a service helps companies organize interactive online events like webinars or conferences and create a library of engaging pre-recorded content. The software provides users with tools that handle everything from registrations, streaming the video itself, to analytics on how customers reacted during the talk. Most importantly it allows companies to enhance their webinars with interactive features that allow the viewers to ask questions, immediately start a free trial of the product or request a meeting with the company’s representative. ON24 also connects with marketing and sales automation data to provide better insights to sales teams, making it easier to convert prospects into paying users.
Virtual Events Software
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.
ON24 faces competition from marketing and web engagement tools provided by companies including Zoom (NASDAQ:ZM), LogMeIn (NASDAQ:LOGM), Intrado, Cisco (NASDAQ:CSCO), and Cvent.
Sales Growth
As you can see below, ON24's revenue has declined over the last three years, shrinking from $50.1 million in Q1 2021 to $37.73 million this quarter.
ON24's revenue was down again this quarter, falling 12.4% year on year.
Next quarter, ON24 is guiding for a 13.7% year-on-year revenue decline to $36.3 million, a further deceleration from the 12.8% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street was expecting revenue to decline 9.3% over the next 12 months before the earnings results announcement.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 74.1% in Q1.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, ON24's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. ON24's free cash flow came in at $1.1 million in Q1, turning positive over the last year.
ON24 has burned through $8.94 million of cash over the last 12 months, resulting in a negative 5.6% free cash flow margin. This low FCF margin stems from ON24's constant need to reinvest in its business to stay competitive.
Key Takeaways from ON24's Q1 Results
We enjoyed seeing ON24 exceed analysts' billings expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. Overall, this quarter's results seemed fairly positive. The stock is flat after reporting and currently trades at $6.76 per share.
Is Now The Time?
When considering an investment in ON24, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We cheer for everyone who's making the lives of others easier through technology, but in case of ON24, we'll be cheering from the sidelines. Its revenue has declined over the last three years, and analysts don't see anything changing. And while its strong gross margins suggest it can operate profitably and sustainably, the downside is its existing customers have been reducing their spending, which is a bit concerning. On top of that, its customer acquisition is less efficient than many comparable companies.
ON24's price-to-sales ratio based on the next 12 months is 1.9x, suggesting the market has lower expectations for the business relative to the hottest tech stocks. While there are some things to like about ON24 and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.
Wall Street analysts covering the company had a one-year price target of $8.67 right before these results (compared to the current share price of $6.76).
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