Yext’s Q3 Earnings Show Minimal Growth and Declining Metrics
Yext, a leading AI and automation-driven company, recently released its Q3 earnings report, revealing minimal revenue growth and a decline in key metrics. Despite the optimism surrounding the market’s direction in 2024, it seems that Yext is struggling to keep up with the competition in the tech sector.
Yext’s primary products, Yext Listings, Yext Answers, and Yext Knowledge Graph, were designed to automate processes and provide intelligent solutions for user queries. However, while many software companies have experienced a surge in bookings from GenAI use cases, Yext’s growth remains lackluster.
The company’s revenue saw a meager 2% year-on-year growth, totaling $101.2 million in Q3. This figure fell short of Wall Street’s expectations and reflected a continuation of the stagnant growth trend. Additionally, Yext’s Annual Recurring Revenue (ARR) declined by approximately $1 million, marking the fourth consecutive quarter of decay.
Another concerning metric is Yext’s net retention rate, which came in at less than 100%. This indicates ongoing customer churn, contrasting with the software industry’s tendency to report retention rates above 100%. Furthermore, Yext has witnessed customer defections from both direct-channel customers and those gained through third-party resellers.
Considering these challenges, Yext’s stock has already experienced a significant decline of 15% over the past year, significantly underperforming other software stocks. While the company’s low valuation might have made it an attractive M&A target, the customer defections, lack of growth, and inability to capitalize on recent AI trends make this outcome uncertain.
Currently, Yext’s stock is considered quite cheap, trading at just above $5 with a market cap of $686.1 million. After subtracting the $182.2 million of cash on Yext’s balance sheet, the resulting enterprise value is $503.9 million. For the next fiscal year, analysts expect Yext to generate $404.9 million in revenue, representing flat year-on-year growth. Consequently, Yext’s valuation multiple stands at just 1.2x EV/FY25 revenue.
Despite the company’s hope for a return to ARR growth next year, the CEO acknowledged that the situation may worsen in Q4 before showing signs of improvement. Yext faces challenges due to budget pressures, deals downsizing or slipping during later stages, and the anticipation of a significant churn from a specific customer.
To summarize, Yext’s Q3 earnings report reflects the core issues plaguing the company. With stagnant growth, customer defections, and limited market relevance in comparison to other AI-driven software providers, Yext appears to be in a challenging position. While there may be some upside risks, such as unexpected M&A or improved execution, the overall risk outweighs the potential reward. Investors are advised to proceed with caution and explore other investment options.
