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Yext (NYSE:YEXT) Posts Better-Than-Expected Sales In Q2 But Stock Drops


Full Report / September 02, 2021
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Online reputation and search platform Yext (NYSE:YEXT) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 11.4% year on year to $98.1 million. Yext made a GAAP loss of $27.5 million, down on its loss of $25.1 million, in the same quarter last year.

Yext (YEXT) Q2 FY2022 Highlights:

  • Revenue: $98.1 million vs analyst estimates of $95 million (3.23% beat)
  • EPS (non-GAAP): -$60 vs analyst estimates of -$0.07
  • Revenue guidance for Q3 2022 is $98 million at the midpoint, above analyst estimates of $97.2 million
  • The company reconfirmed revenue guidance for the full year, at $387 million at the midpoint
  • Free cash flow was negative $35.7 million, down from positive free cash flow of $27.6 million in previous quarter
  • Customers: 2,600, up from 2,500 in previous quarter
  • Gross Margin (GAAP): 72.8%, down from 76.2% previous quarter

Founded in 2006, Yext offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.

For example, a new car dealership can easily share information such as addresses, phone numbers, and product details to a broad audience by uploading these details on Yext. The information is synchronized across a network of third-party apps and websites such as Google Maps, Facebook, and various local directories. This helps improve the brand's visibility to online shoppers in search engines.

Yext is also using the data it gathers about a company’s products and offerings to power a search technology that its customers can embed on their website, and that allows website visitors to search and find answers to questions more efficiently.

As the number of places that keep business listings (such as addresses, opening hours and contact details) increases, the task of keeping all listings up-to-date becomes more difficult and that drives demand for one, centralized solution.

Competitors include Moz, Uberall, Algolia and Elastic Search (NYSE:ESTC).

Sales Growth

As you can see below, Yext's revenue growth has been solid over the last year, growing from quarterly revenue of $88 million, to $98.1 million.

Yext Total Revenue

This quarter, Yext's quarterly revenue was once again up 11.4% year on year. On top of that, revenue increased $6.13 million quarter on quarter, a strong improvement on the $202 thousand decrease in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 12.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Yext reported 2,600 customers at the end of the quarter, an increase of 100 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

Yext Customers

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. Yext's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 72.8% in Q2.

Yext 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 the recent drop this is still around the 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 Yext's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Yext’s balance sheet, but we note that with a market capitalization of $1.74 billion and more than $240.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Yext outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin and the revenue growth was quite weak. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down -8.26% on the results and currently trades at $12.78 per share.

Is Now The Time?

When considering Yext, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although Yext is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been a little slower, and analysts believe that rate will remain roughly steady. And while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately growth is coming at a cost of significant cash burn.

Yext's price to sales ratio based on the next twelve months is 4.2, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. In the end, beauty is in the eye of the beholder. While Yext wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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