I was surprised to read a recent Gary Alexander article on Seeking Alpha in which he didn’t think the stock was overvalued.
https://seekingalpha.com/article/4235960-yext-great-growth-s…
Rare day. Not sure if that’s a good or bad thing, but it prompted me to take a closer look, and they check a lot of boxes. Here are my boiled down notes.
What do they do?
Yext is the creator of a new global category called Digital Knowledge Management (DKM). Every business in every geography needs DKM. It’s a knowledge engine platform that enables businesses to manage and control their public-facing information across the digital universe and become more discoverable.
Basically, a business inputs it’s information into the Yext platform creating a single source of truth, which is then synced to Yext’s publisher network of around 150 third-party services like maps, digital assistants, apps, search engines, gps systems, vertical directories, and social networks. They are capitalizing on a major platform shift, the rise of conversational AI (services like Alexa, Siri, and Google assistant), as well as making search intelligent by helping to provide precise, accurate, and current answers to location-based queries conducted across mobile, web, and voice.
Yext is a cloud-based, horizontal SaaS company in land and expand mode.
Moat
First mover advantage with virtually no competition.
Size and breadth of publisher network.
Produce large ROI for their customers (up to 15x).
New services (Yext Brain, Yext Think) and partnerships (Amazon) will strengthen the value proposition and increase pricing power.
Management
CEO is co-founder with 98% glassdoor approval. Insiders own around 10% of company. Winner of best places to work awards.
Runway
Huge winner take all opportunity that is expanding as they create new offerings and educate the market. TAM estimate at IPO in April 2017 was $10b. Yext has around a $1.6b market cap and ttm revenue of $213m for a p/s of 7.5. For an example of the opportunity, there are over 100m locations in Google maps alone, and at IPO Yext had 1m of them, less than 1% penetration.
Financials
Revenue ($mil):
Q1 Q2 Q3 Q4 Yearly
f2017 27 30 32 36 124
f2018 37 41 44 48 170
f2019 51 55 59
Rev Growth (%yoy):
Q1 Q2 Q3 Q4 Yearly
f2018 37 38 39 35 37
f2019 38 35 33
Q3 revenue was up 33% to $58.7m, but they are transitioning away from their small biz segment to focus on mid-market and enterprise customers which grew 39%. They are investing heavily in sales/marketing for these new customers, which led to net loss widening 45% this quarter to -$24.8m (non-Gaap net loss was -$11.8m, up 6% yoy). They fully intend to continue to run at a negative to breakeven operating cash flow until they max out growth opportunities. Q1 and Q3 are typically softer. 38% cagr since 2015.
Net revenue retention rate = 109% (this number could be skewed by shift in customer base)
Gross margin = 75%
No debt, cash balance of $107m
Q4 guidance: Revenue of $62.5m representing 30% growth.
Full year guidance: Revenue of $227.5m representing 34% growth. Fiscal year ends Jan 31.
CEO quote: “We believe leading brands are recognizing the highly attractive returns our revolutionary platform can deliver through higher revenue, improved process efficiencies, and better visibility in intelligent services.”
Opportunity
The stock is down around 40% from it’s September highs and hasn’t recovered from the December lows with other tech stocks. May be worth a try out position with decent potential for a rebound or even buyout. It’s a unique and undiscovered small cap growth stock with a great product, long runway, and relatively cheap valuation.
