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Yext: Buying The Dip

Dec. 11, 2019 2:17 AM ETYext, Inc. (YEXT)3 Comments
The Prospector profile picture
The Prospector


  • Yext reported strong revenue growth, but losses widened, and subdued revenue growth guidance heading into Q4 resulted in shares getting crushed.
  • The company is investing in growth, notably in sales.
  • The company believes it doubled its addressable market from $10 billion to $20 billion by introducing its Yext Answers solution.
  • At a forward price/sales ratio of 5, Yext is one of the cheaper unprofitable SaaS plays in the market, but it has increasing losses due to labor costs.
  • I initiated a small position after the Q3 selloff.


Yext (NYSE:YEXT) reported another quarter of strong revenue growth, but losses continue to widen and the company has issued tempered revenue growth guidance heading into Q4.

That said, the market potential for Yext appears to be ample. The company may continue to face cost challenges in the near term, but if it can continue to grow revenue in excess of 30% and get a handle on costs at some point and turn a profit, the current valuation of 5 P/S and a market cap of $1 billion may look like a gift a couple of years down the road.

While I wouldn't bet the farm on Yext or any other unprofitable SaaS company, I don't see the harm in buying a basket of SaaS stocks with hyper-growth potential that could pay big rewards down the line. Yext appears to be one of those stocks. I initiated a small position after the steep Q3 selloff.

Q3: Investing In Growth

As happened in Q2, Yext's margins took a hit in Q3. Gross margins were down from 74.7% last year to 73.3% this year, though the company notes that it believes it can consistently maintain gross margins in the 73-77% range.

Yext posted a net loss of $42.7 million on $76.4 million in sales. This time last year, the company lost $22.9 million on $58.7 million in sales. In short, the company is increasingly spending a lot more than it's taking in. Yext continues to invest in people, notably sales and marketing, which totaled $62 million in the quarter, up 42% yoy. As of Q3, it had 250 sales reps, which is up 45% from the beginning of the year. The company has aggressively invested in hiring to support its growth ambitions.

Costs may continue to rise and the stock might experience

This article was written by

The Prospector profile picture
Long-term focus, with some exceptions. Self-taught investor. I started investing my own money in 2010 and have outperformed the S&P 500 in the years since.

Analyst’s Disclosure: I am/we are long YEXT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

EriCoin profile picture
It's difficult to trust a stock when insurers are notorious for dumping every time it tries to recover.
I don't think this company will ever make money. insiders sell like crazy. if you want to bottom fish, buy dropbox. at least they make money, they have a billion in net cash, and the ceo just bought $9.5 million worth of stock.
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