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Yext (NYSE:YEXT) Posts Q4 Sales In Line With Estimates, Stock Jumps 16.6%


Full Report / March 06, 2024

Online reputation and search platform Yext (NYSE:YEXT) reported results in line with analysts' expectations in Q4 FY2024, with revenue flat year on year at $101.1 million. On the other hand, next quarter's revenue guidance of $96.25 million was less impressive, coming in 3.1% below analysts' estimates. It made a non-GAAP profit of $0.10 per share, improving from its profit of $0.05 per share in the same quarter last year.

Yext (YEXT) Q4 FY2024 Highlights:

  • Revenue: $101.1 million vs analyst estimates of $100.6 million (small beat)
  • EPS (non-GAAP): $0.10 vs analyst estimates of $0.07 (47.1% beat)
  • Revenue Guidance for Q1 2025 is $96.25 million at the midpoint, below analyst estimates of $99.32 million
  • Management's revenue guidance for the upcoming financial year 2025 is $401 million at the midpoint, missing analyst estimates by 1.7% and implying -0.8% growth (vs 0.9% in FY2024)
  • Free Cash Flow of $27.61 million is up from -$2.33 million in the previous quarter
  • Gross Margin (GAAP): 78.6%, up from 74% in the same quarter last year
  • Market Capitalization: $713.4 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 two years, growing from $100.9 million in Q4 FY2022 to $101.1 million this quarter.

Yext Total Revenue

This quarter, Yext's revenue was down 0.8% year on year, which might disappointment some shareholders.

Next quarter, Yext is guiding for a 3.2% year-on-year revenue decline to $96.25 million, a further deceleration from the 0.7% year-on-year decrease it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $401 million at the midpoint, declining 0.8% year on year compared to the 0.9% increase in FY2024.

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 78.6% in Q4.

Yext Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, Yext's impressive gross margin 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 $27.61 million in Q4, down 21.4% year on year.

Yext Free Cash Flow

Yext has generated $43.43 million in free cash flow over the last 12 months, or 10.7% of revenue. This FCF margin stems from its asset-lite business model and enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Yext's Q4 Results

Although Yext's revenue missed analysts' estimates, its profitability was better than expected. It produced $14.8 million of adjusted EBITDA (vs estimates of $12.6 million), partly thanks to a huge year-on-year increase in its gross margin, which expanded from 74% to 78.6% thanks to the company's shift to a professional services strategy. This encouraging gross margin expansion trumped its underwhelming full-year revenue guidance, which was below expectations. A reason for the lower revenue guidance was the loss of a large customer during the quarter, but the market doesn't seem to care. The stock is up 16.6% after reporting and currently trades at $6.95 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 the case of Yext, we'll be cheering from the sidelines. Its revenue growth has been weak, 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 1.9x, suggesting the market has lower expectations for the business, relative to the high-growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market, and at the moment, don't see many reasons to get involved.

Wall Street analysts covering the company had a one-year price target of $7.83 per share right before these results (compared to the current share price of $6.95).

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