Online reputation and search platform Yext (NYSE:YEXT) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 1.71% year on year to $102.6 million. The company also expects next quarter's revenue to be around $102 million, slightly below analysts' estimates. Turning to EPS, Yext made a non-GAAP profit of $0.06 per share, improving from its loss of $0.03 per share in the same quarter last year.
Yext (YEXT) Q2 FY2024 Highlights:
- Revenue: $102.6 million vs analyst estimates of $102 million (small beat)
- EPS (non-GAAP): $0.06, in line with analysts' expectations
- Revenue Guidance for Q3 2024 is $102 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $406 million at the midpoint
- Free Cash Flow was -$7.66 million, down from $25.8 million in the previous quarter
- Customers: 2,980, up from 2,970 in the previous quarter
- Gross Margin (GAAP): 78.2%, up from 73.2% in the 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 two years, growing from $98.1 million in Q2 FY2022 to $102.6 million this quarter.
Yext's quarterly revenue was only up 1.71% year on year, which might disappoint some shareholders. However, its revenue increased $3.15 million quarter on quarter, a strong improvement from the $2.45 million decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Yext is expecting revenue to grow 2.74% year on year to $102 million, improving on the 0.25% year-on-year decline it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 2.86% over the next 12 months before the earnings results announcement.
Customer Growth
Yext reported 2,980 customers at the end of the quarter, an increase of 10 from the previous quarter. That's in line with the customer growth we observed last quarter but a bit below what we've typically seen over the last year, suggesting that sales momentum may be slowing a little.
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 78.2% in Q2.
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. 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 burned through $7.66 million of cash in Q2 , reducing its cash burn by 69.6% year on year.
Yext has generated $43.3 million in free cash flow over the last 12 months, a solid 10.7% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from Yext's Q2 Results
Sporting a market capitalization of $1.13 billion, Yext is among smaller companies, but its more than $200.5 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We struggled to find many strong positives in these results. Yext's revenue guidance for next quarter missed analysts' expectations and investors were likely hoping for a better outlook. On the bright side, the company increased its share repurchase program by $50 million. Overall, this was a mediocre quarter. The company is down 10.7% on the results and currently trades at $8.1 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 very weak, and analysts expect growth rates to deteriorate from there. And while its strong gross margins suggest it can operate profitably and sustainably, unfortunately customer acquisition is less efficient than many comparable companies.
Yext's price to sales ratio based on the next 12 months is 2.7x, 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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