Yext (YEXT)

Online reputation and search platform Yext (NYSE:YEXT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 14.1% year on year to $109.5 million. Guidance for next quarter’s revenue was better than expected at $111.3 million at the midpoint, 1.7% above analysts’ estimates. Its non-GAAP profit of $0.12 per share was in line with analysts’ consensus estimates.

Company Overview

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.

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.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Yext grew its sales at a weak 3% compounded annual growth rate. This fell short of our benchmark for the software sector and is a tough starting point for our analysis.

This quarter, Yext reported year-on-year revenue growth of 14.1%, and its $109.5 million of revenue exceeded Wall Street’s estimates by 1.8%. Company management is currently guiding for a 13.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4% over the next 12 months, similar to its three-year rate. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.

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.

Yext’s billings punched in at $87.8 million in Q1, and over the last four quarters, its growth was impressive as it averaged 20.6% year-on-year increases. This alternate topline metric grew faster than 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.

Yext’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

For software companies like Yext, 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.

Yext’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an excellent 76.5% gross margin over the last year. That means Yext only paid its providers $23.46 for every $100 in revenue.

In Q1, Yext produced a 75.2% gross profit margin, down 2.3 percentage points year on year. Yext’s full-year margin has also been trending down over the past 12 months, decreasing by 1.6 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Although Yext was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 6% 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 Yext reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Analyzing the trend in its profitability, Yext’s operating margin decreased by 3.4 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Yext’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, Yext generated an operating margin profit margin of 1%, up 6.7 percentage points year on year. The increase was solid, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

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.

Yext has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11% over the last year, slightly better than the broader software sector.

Yext’s free cash flow clocked in at $37.16 million in Q1, equivalent to a 33.9% margin. The company’s cash profitability regressed as it was 5.3 percentage points lower than in the same quarter last year, but it’s still above its one-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

Companies with more cash than debt have lower bankruptcy risk.

Yext is a well-capitalized company with $115 million of cash and $92.77 million of debt on its balance sheet. This $22.22 million net cash position is 2.7% 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 how significantly Yext blew past analysts’ billings and EBITDA expectations this quarter. We were also excited its full-year guidance topped estimates .Zooming out, we think this was a solid print. The stock remained flat at $6.82 immediately following the results.

Updated: July 10, 2025 at 10:12 PM EDT

Before making an investment decision, investors should account for Yext’s business fundamentals and valuation in addition to what happened in the latest quarter.

Yext’s business quality ultimately falls short of our standards. First off, its revenue growth was weak over the last three years. And while its gross margin suggests it can generate sustainable profits, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its declining operating margin shows it’s becoming less efficient at building and selling its software.

Yext’s price-to-sales ratio based on the next 12 months is 2.4x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $9.44 on the company (compared to the current share price of $8.59).