Virtual events software company (NYSE:ONTF) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue down 17.6% year on year to $39.2 million. On top of that, next quarter's revenue guidance ($37.3 million at the midpoint) was 5.4% above what analysts were expecting. Turning to EPS, ON24 made a GAAP loss of $0.26 per share, improving from its loss of $0.30 per share in the same quarter last year.
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ON24 (ONTF) Q3 FY2023 Highlights:
- Revenue: $39.2 million vs analyst estimates of $38 million (3.3% beat)
- EPS (non-GAAP): $0.03 vs analyst estimates of $0.0 ($0.03 beat)
- Revenue Guidance for Q4 2023 is $37.3 million at the midpoint, above analyst estimates of $35.4 million
- Free Cash Flow was -$3.2 million compared to -$4.9 million in the previous quarter
- Gross Margin (GAAP): 72.3%, in line with the same quarter last year
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.
Virtual Events SoftwareOnline 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.
Sales GrowthAs you can see below, ON24's revenue has been declining over the last two years, shrinking from $49.4 million in Q3 FY2021 to $39.2 million this quarter.
ON24's revenue was down again this quarter, falling 17.6% year on year.
Next quarter, ON24 is guiding for a 19.9% year-on-year revenue decline to $37.3 million, a further deceleration from the 10.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street was expecting revenue to decline 14.6% over the next 12 months before the earnings results announcement.
ProfitabilityWhat 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. ON24'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 72.3% in Q3.
That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, sales and marketing, and general administrative overhead. ON24's gross margin is lower than that of a typical SaaS businesses and its decline over the last year is putting it in an even deeper hole. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Key Takeaways from ON24's Q3 Results Although ON24, which has a market capitalization of $274.4 million, has been burning cash over the last 12 months, its more than $213.7 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We were impressed by ON24's revenue guidance and rosy outlook for next quarter, which blew past analysts' expectations. On the other hand, its gross margin fell. Overall, we think this was a good quarter that could please shareholders. The stock is up 6.4% after reporting and currently trades at $6.85 per share.
The author has no position in any of the stocks mentioned in this report.
