Why Yext (YEXT) Shares Are Plunging Today

Petr Huřťák /
2023/12/06 10:49 am EST

What Happened:

Shares of online reputation and search platform Yext (NYSE:YEXT) fell 8.7% in the morning session after the company reported third quarter results with revenue missing Wall Street's estimates. Similarly, its revenue guidance for next quarter underwhelmed. On the other hand, its EPS and free cash flow beat analysts' estimates. During the earnings call, management noted that the selling environment remains challenging, with some deals slipping or downsizing during the later stages of deal cycles. This caused softness in bookings as well as budget pressures on renewals. In addition, it expects a large churn in Q4 attributable to a customer. As a result, the company doesn't expect reacceleration in FY'24 revenues and ARR (recurring revenue) as anticipated at the beginning of the fiscal year. Overall, it was a weaker quarter for Yext, with little reason for investors to stay optimistic. 

As a reminder, Yext "organizes a business's facts so it can deliver relevant, actionable answers to consumer questions throughout the digital ecosystem." 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. These facts are presented in a consistent and accurate manner on multiple platforms such as third-party websites and apps like Google Maps. The longer-term threat to a business like this is AI. Does the world need Yext's services less as AI is able to find, organize, and present unstructured data? The stock price move suggests that investors are fearing this very outcome today.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Yext? Access our full analysis report here, it's free.

What is the market telling us:

Yext's shares are quite volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 6 months ago, when the stock gained 18.4% on the news that the company reported an impressive "beat and raise" quarter. First quarter results exceeded analysts' revenue estimates. Similarly, profitability metrics came in strong with gross margin, free cash flow, adjusted EBITDA, and earnings per share (EPS) all beating Consensus estimates. Guidance was also strong, with the revenue and adjusted EBITDA guidance for the next quarter exceeding Consensus estimates. Similarly, the full-year revenue and adjusted EBITDA guidance beat and were both raised. A slowdown in customer growth was the only minor negative we'd highlight. Regardless, it was a very strong quarter with solid results and impressive guidance that should increase investors' optimism.

Yext is down 10.6% since the beginning of the year, and at $5.66 per share it is trading 58.5% below its 52-week high of $13.65 from June 2023. Investors who bought $1,000 worth of Yext's shares 5 years ago would now be looking at an investment worth $364.69.

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