Shares of the online event software provider On24 fell dramatically after the company issued disappointing financial guidance, warning the Street that increased customer churn is going to hurt results in the near term.
On24 (ticker: ONTF) saw a spike in new customers earlier in the pandemic, as many companies shifted to virtual versions of events once held live. But the company says many of those new customers aren’t renewing, or have shifted to smaller contract sizes, as they look ahead to a return to in-person corporate events.
On24 now becomes exhibit A of a company that saw a transitory boost to its business from the pandemic that has now dissipated. It’s the opposite of a reopening play.
On24 shares have tumbled 27% to $23.50 in recent Wednesday trading, after trading as low as $21.50.
For the June quarter, On24 posted revenue of $52.1 million, up 43% from a year earlier, and slightly ahead of the Street consensus at $51 million. Annualized recurring revenue was $164.1 million, up 44%. Non-GAAP earnings were four cents a share, ahead of the Street consensus forecast for a break-even quarter. Under generally accepted accounting principles, or GAAP, the company lost $2.5 million, or 5 cents a share.
The real issue was guidance. For the September quarter, the company sees revenue ranging from $47.5 million to $48.5 million, up between 12% and 14%, and below the old Street consensus at $51.2 million. The company sees a non-GAAP loss of between 7 and 9 cents a share, wider than the Street consensus forecast for a loss of 5 cents.
For the full year, On24 now forecasts revenue of $201.2 million to $204.2 million, down from a previous guidance range of $207.5 million and $210.5 million. The company’s revised guidance calls for a non-GAAP loss of between 6 cents and 13 cents a share, compared with a previous forecast for a loss of between 2 cents and 8 cents a share.
CEO Sharat Sharan said on a conference call with analysts that the company saw “higher-than-expected churn and down-sell from customers we signed up in the second quarter of last year during the peak of Covid.” The higher churn, he said, was mostly among customers who signed up for one-year contracts last year and who were up for renewal. He also said the company saw some “downsizing” in enterprise accounts “to normalize for some of the peak of Covid buying.”
J.P. Morgan analyst Sterling Auty responded to the quarterly report by cutting his rating on the stock to Neutral from Overweight, with a new target of $32, down from $85.
“Management’s previous guidance had not factored in enough in churn from smaller accounts that had driven up professional services revenue, and that caused a double hit to both platform and professional service revenue line items,” he writes in a research note. “Separately, a shift back to hybrid and in-person events is seeing some portion of enterprise accounts reducing spend on items like number of licenses and workspaces, and that further impacts platform revenue.”
Baird analyst Rob Oliver maintains his Outperform rating on the stock, but slashed his target price to $38 from $70. Oliver remains bullish on the company as a play on business-to-business digital engagement, but writes that the shares are likely to be in the penalty box until investors regain confidence in the outlook and management execution.
Write to Eric J. Savitz at [email protected]
