Online reputation and search platform Yext (NYSE:YEXT) reported results in line with analyst expectations in Q3 FY2023 quarter, with revenue flat year on year at $99.2 million. However, guidance for the next quarter was less impressive, coming in at $100.5 million at the midpoint, being 0.92% below analyst estimates. Yext made a GAAP loss of $12.3 million, improving on its loss of $24.9 million, in the same quarter last year.
Yext (YEXT) Q3 FY2023 Highlights:
- Revenue: $99.2 million vs analyst estimates of $99.6 million (small miss)
- EPS (non-GAAP): $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
- Revenue guidance for Q4 2023 is $100.5 million at the midpoint, below analyst estimates of $101.4 million
- Free cash flow was negative $12.3 million, compared to negative free cash flow of $25.1 million in previous quarter
- Customers: 2,900, up from 2,870 in previous quarter
- Gross Margin (GAAP): 74.1%, 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).
As you can see below, Yext's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $89 million in Q3 FY2021, to $99.2 million.
But this quarter Yext's revenue was down 0.25% year on year, which might be a disappointment to some shareholders.
Yext is guiding for revenue to decline next quarter 0.42% year on year to $100.5 million, a further deceleration on the 9.47% 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 5.26% over the next twelve months.
You can see below that Yext reported 2,900 customers at the end of the quarter, an increase of 30 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.
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 74.1% in Q3.
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.
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 burned through $12.3 million in Q3, increasing the cash burn by 26.6% year on year.
Yext has generated $7.86 million in free cash flow over the last twelve months, 1.96% 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 Q3 Results
With a market capitalization of $649.2 million Yext is among smaller companies, but its more than $162.2 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
It was nice that Yext improved their gross margin, even if just slightly. That feature of these results really stood out as a positive. On the other hand, revenue has declined and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Yext. The company is flat on the results and currently trades at $5.33 per share.
Is Now The Time?
Yext may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. 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 1.6x, 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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