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Yext (YEXT) Research Report: Q1 CY2024 Update


Full Report / June 10, 2024

Online reputation and search platform Yext (NYSE:YEXT) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 3.5% year on year to $95.99 million. The company expects next quarter's revenue to be around $98.2 million, in line with analysts' estimates. It made a non-GAAP profit of $0.05 per share, down from its profit of $0.08 per share in the same quarter last year.

Yext (YEXT) Q1 CY2024 Highlights:

  • Acquired Hearsay Systems, a leading digital client engagement platform for financial services
  • Revenue: $95.99 million vs analyst estimates of $96.33 million (small miss)
  • EPS (non-GAAP): $0.05 vs analyst expectations of $0.06 (13% miss)
  • Revenue Guidance for Q2 CY2024 is $98.2 million at the midpoint, roughly in line with what analysts were expecting
  • The company dropped its revenue guidance for the full year from $401 million to $395 million at the midpoint, a 1.5% decrease (but raised adjusted EBITDA and EPS guidance)
  • Gross Margin (GAAP): 77.6%, down from 78.5% in the same quarter last year
  • Free Cash Flow of $37.66 million, up 36.4% from the previous quarter
  • Billings: $69.29 million at quarter end, down 4.8% year on year
  • Market Capitalization: $648.8 million

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.

Listing Management Software

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 three years, growing from $91.99 million in Q1 2022 to $95.99 million this quarter.

Yext Total Revenue

This quarter, Yext's revenue was down 3.5% year on year, which might disappointment some shareholders.

Next quarter, Yext is guiding for a 4.3% year-on-year revenue decline to $98.2 million, a further deceleration from the 1.7% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 2% 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. Yext'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 77.6% in Q1.

Yext Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite the recent drop, Yext still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

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. Yext's free cash flow came in at $37.66 million in Q1, up 46% year on year.

Yext Free Cash Flow

Yext has generated $55.29 million in free cash flow over the last 12 months, a decent 13.8% of revenue. This FCF margin stems from its asset-lite business model and gives it a decent amount of cash to reinvest in its business.

Key Takeaways from Yext's Q1 Results

We were impressed by how strongly Yext blew past analysts' billings expectations this quarter. On the other hand, its full-year revenue guidance was lowered and below expectations and its revenue also missed Wall Street's estimates. Overall, this was a bad quarter for Yext. The company is down 13.9% on the results and currently trades at $4.35 per share.

Is Now The Time?

When considering an investment in Yext, 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 Yext, we'll be cheering from the sidelines. Its revenue growth has been weak over the last three years, and analysts expect growth to deteriorate from here. And while its impressive gross margins indicate excellent business economics, unfortunately, its customer acquisition is less efficient than many comparable companies.

Yext's price-to-sales ratio based on the next 12 months is 1.5x, suggesting the market has lower expectations for the business relative to the hottest tech stocks. While there are some things to like about Yext 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 $7.75 right before these results (compared to the current share price of $4.35).

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