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Yext (NYSE:YEXT) Beats Q3 Sales Targets, Stock Soars


Full Report / December 02, 2021
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Online reputation and search platform Yext (NYSE:YEXT) reported strong growth in the Q3 FY2022 earnings announcement, with revenue up 11.7% year on year to $99.5 million. Guidance for next quarter's revenue was $101 million at the midpoint, which is 1.78% above the analyst consensus. Yext made a GAAP loss of $24.9 million, down on its loss of $22 million, in the same quarter last year.

Yext (YEXT) Q3 FY2022 Highlights:

  • Revenue: $99.5 million vs analyst estimates of $98.2 million (1.34% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.07
  • Revenue guidance for Q4 2022 is $101 million at the midpoint, above analyst estimates of $99.2 million
  • Free cash flow was negative $11.5 million, compared to negative free cash flow of $35.7 million in previous quarter
  • Customers: 2,700, up from 2,600 in previous quarter
  • Gross Margin (GAAP): 74.6%, down from 75.7% 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 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 slower over the last year, growing from quarterly revenue of $89 million, to $99.5 million.

Yext Total Revenue

This quarter, Yext's quarterly revenue was once again up 11.7% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.4 million in Q3, compared to $6.13 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 12% over the next twelve months, although estimates are likely to change post earnings.

Customer Growth

You can see below that Yext reported 2,700 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, licenses, technical support and other necessary running expenses was at 74.6% in Q3.

Yext Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is 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 Q3 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 $1.16 billion and more than $229.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Yext improve their gross margin this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was still a decent, quarter, showing the company is staying on target. The company is up 7.63% on the results and currently trades at $10.15 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 mediocre, but at least that growth rate is expected to increase in the short term. 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 2.8x, 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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