Online reputation and search platform Yext (NYSE:YEXT) reported results in line with analyst expectations in Q1 FY2024 quarter, with revenue flat year on year at $99.5 million. Guidance for next quarter's revenue was $102 million at the midpoint, which is 1.86% above the analyst consensus. Yext made a GAAP loss of $412 thousand, improving on its loss of $25.8 million, in the same quarter last year.
Yext (YEXT) Q1 FY2024 Highlights:
- Revenue: $99.5 million vs analyst estimates of $98.6 million (0.92% beat)
- EPS (non-GAAP): $0.08 vs analyst estimates of $0.05 ($0.03 beat)
- Revenue guidance for Q2 2024 is $102 million at the midpoint, above analyst estimates of $100.1 million
- The company reconfirmed revenue guidance for the full year, at $405.5 million at the midpoint (beat)
- Free cash flow of $25.8 million, down 28.2% from previous quarter
- Customers: 2,970, up from 2,960 in previous quarter
- Gross Margin (GAAP): 78.5%, up from 75% same quarter last year
Founded in 2006 by Howard Lerman, Yext (NYSE: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 centralized solutions that update all touchpoints.
Competitors include Moz, Uberall, Algolia and Elastic Search (NYSE:ESTC).
As you can see below, Yext's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $92 million in Q1 FY2022, to $99.5 million.
Yext's quarterly revenue was only up 0.66% year on year, which might disappoint some shareholders. But the revenue actually decreased by $2.45 million in Q1, compared to $2.62 million increase in Q4 2023. However, Yext's sales do seem to have a seasonal pattern to them, and considering management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.
Guidance for the next quarter indicates Yext is expecting revenue to grow 1.12% year on year to $102 million, slowing down from the 2.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 1.65% over the next twelve months.
You can see below that Yext reported 2,970 customers at the end of the quarter, an increase of 10 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing down.
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, licenses, technical support and other necessary running expenses was at 78.5% in Q1.
That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like Yext to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
Cash Is King
If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Yext's free cash flow came in at $25.8 million in Q1, up 59.1% year on year.
Yext has generated $25.8 million in free cash flow over the last twelve months, a decent 6.42% of revenues. This FCF margin is a result of Yext asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.
Key Takeaways from Yext's Q1 Results
With a market capitalization of $1.15 billion Yext is among smaller companies, but its more than $216.9 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We were very impressed by the strong improvements in Yext’s gross margin this quarter. And we were also glad that the revenue and adjusted EBITDA guidance for the next quarter exceeded analysts' expectations. Full year guidance for revenue and adjusted EBITDA was ahead as well, adding to the quality of the quarter. Lastly on the positive side, free cash flow beat. On the other hand, the slowdown in customer growth was a slight negative. Overall, this quarter's results were not perfect but certainly good overall. The company is up 8.24% on the results and currently trades at $10.38 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. We cheer for everyone who is making the lives of others easier through technology, but in case of Yext we will be cheering from the sidelines. Its revenue growth has been very weak, and analysts expect growth rates to deteriorate from there.
Yext's price to sales ratio based on the next twelve months is 2.9x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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