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Yext (NYSE:YEXT) Q2 Sales Beat Estimates


Full Report / September 07, 2022
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Online reputation and search platform Yext (NYSE:YEXT) reported Q2 FY2023 results that beat analyst expectations, with revenue up 2.79% year on year to $100.8 million. However, guidance for the next quarter was less impressive, coming in at $99.5 million at the midpoint, being 0.9% below analyst estimates. Yext made a GAAP loss of $19.9 million, improving on its loss of $27.5 million, in the same quarter last year.

Yext (YEXT) Q2 FY2023 Highlights:

  • Revenue: $100.8 million vs analyst estimates of $99.6 million (1.22% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.05
  • Revenue guidance for Q3 2023 is $99.5 million at the midpoint, below analyst estimates of $100.4 million
  • The company reconfirmed revenue guidance for the full year, at $400.4 million at the midpoint
  • Free cash flow was negative $27.3 million, down from positive free cash flow of $16.2 million in previous quarter
  • Customers: 2,870, up from 2,830 in previous quarter
  • Gross Margin (GAAP): 73.1%, in line with 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).

Sales Growth

As you can see below, Yext's revenue growth has been unimpressive over the last year, growing from quarterly revenue of $98.1 million, to $100.8 million.

Yext Total Revenue

Yext's quarterly revenue was only up 2.79% year on year, which would likely disappoint many shareholders. But at least revenue increased $2.06 million quarter on quarter, an improvement on the $2.13 million decrease in Q1 2023, and a sign of acceleration of growth, which is very nice to see indeed.

Yext is guiding for revenue to decline next quarter 0.02% year on year to $99.5 million, a further deceleration on the 11.7% year-over-year decrease 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 3.48% over the next twelve months.

Customer Growth

You can see below that Yext reported 2,870 customers at the end of the quarter, an increase of 40 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 a little bit.

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, licenses, technical support and other necessary running expenses was at 73.1% in Q2.

Yext Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 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.

Cash Is King

If you follow 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 burned through $27.3 million in Q2,

Yext Free Cash Flow

Yext has generated $5.35 million in free cash flow over the last twelve months, 1.33% of revenues. This FCF margin is a result of Yext asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.

Key Takeaways from Yext's Q2 Results

With a market capitalization of $514.1 million Yext is among smaller companies, but its more than $187.9 million in cash and positive free cash flow over the last twelve months give us confidence that Yext has the resources it needs to pursue a high growth business strategy.

Yext 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 the slowdown in customer growth and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Yext. The company is flat on the results and currently trades at $4.32 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 1.3x, 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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