ON24 (ONTF)

Virtual events software company (NYSE:ONTF) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 5.4% year on year to $35.33 million. Guidance for next quarter’s revenue was better than expected at $33.9 million at the midpoint, 0.8% above analysts’ estimates. Its non-GAAP profit of $0.02 per share was $0.01 above analysts’ consensus estimates.

Company Overview

Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.

Online marketing and sales are expanding at a rapid pace. Compared to the offline advertising market, which has been affected by the Covid pandemic and is challenging to measure and improve, more organizations are expected to adopt data-driven digital engagement platforms to better engage their customers online.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. ON24 struggled to consistently generate demand over the last three years as its sales dropped at a 10.3% annual rate. This was below our standards and suggests it’s a low quality business.

This quarter, ON24’s revenue fell by 5.4% year on year to $35.33 million but beat Wall Street’s estimates by 1.9%. Company management is currently guiding for a 6.7% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 5.2% over the next 12 months. it’s tough to feel optimistic about a company facing demand difficulties.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

ON24’s billings came in at $25.93 million in Q2, and it averaged 3.3% year-on-year declines over the last four quarters. However, this alternate topline metric outperformed its total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

It’s relatively expensive for ON24 to acquire new customers as its CAC payback period checked in at 55.5 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

For software companies like ON24, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

ON24’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 74.8% gross margin over the last year. Said differently, ON24 paid its providers $25.16 for every $100 in revenue.

This quarter, ON24’s gross profit margin was 75.1%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

ON24’s expensive cost structure has contributed to an average operating margin of negative 31.3% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if ON24 reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

On the plus side, ON24’s operating margin rose by 2.4 percentage points over the last year. Still, it will take much more for the company to reach long-term profitability.

This quarter, ON24 generated a negative 26% operating margin. The company's consistent lack of profits raise a flag.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

ON24 has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.2%, subpar for a software business.

ON24’s free cash flow clocked in at $2.08 million in Q2, equivalent to a 5.9% margin. This result was good as its margin was 3.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts predict ON24’s cash conversion will fall to break even. Their consensus estimates imply its free cash flow margin of 3.2% for the last 12 months will decrease by 4.2 percentage points.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

ON24 is a well-capitalized company with $179.6 million of cash and no debt. This position is 89.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by ON24’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its billings missed. Overall, we think this was still a solid quarter with some key areas of upside. The stock remained flat at $4.73 immediately following the results.

Updated: November 8, 2025 at 9:15 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies addressing major business pain points, but in the case of ON24, we’re out. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its gross margin suggests it can generate sustainable profits, the downside is its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. On top of that, its operating margins reveal poor profitability compared to other software companies.

ON24’s price-to-sales ratio based on the next 12 months is 1.5x. This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $5 on the company (compared to the current share price of $4.94).