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Yext: Ignored Digital Transformation Stock

Jun. 09, 2020 1:19 PM ETYext, Inc. (YEXT)GOOG, GOOGL16 Comments


  • Yext delivered solid FQ1 growth with guidance for FQ2 growth topping 17%.
  • The stock is only back to pre-virus levels despite the ability to generate strong top line growth.
  • At a more normal 6x EV/S targets, the stock is worth $26.
  • This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

As digital transformation stocks soar, Yext (NYSE:YEXT) is one stock in the group left behind. The stock remains far below 2018 and 2019 levels despite the ability to maintain growth estimates in excess of 17.5% with a large set of customers in retail and food service verticals shutdown. My investment thesis remains highly bullish on the stock as the market continues to overlook the growth of this digital transformation company.

Image Source: Yext website

Consistent Growth

For the just reported FQ1, Yext reported revenues of $85.4 million for 24% growth. The company has a strong history of revenue growth since going public back in 2017, but the stock has gone absolutely nowhere over this period despite consistent growth.

The last quarter had an annualized revenue run rate of $342 million with analyst estimates of $356 million for FY21 despite the COVID-19 impact to customers. Yext has seen numerous customers furlough their contacts, slowing down renewal processes.

The search experience cloud company still guided to FQ2 revenues of $85 million for over 17% growth:

Source: Yext FQ1'20 earnings release

The biggest uncertainty and concern with Yext was the ongoing losses. The company forecast a non-GAAP loss for the quarter of $0.12 after reporting a $0.10 loss in the last quarter.

For FY20, Yext reported the company had negative operating cash flows of $30.8 million. The company ended April with a cash balance of $248.8 million.

Clearly, Yext doesn't have a lot of risk with the cash balance considering the limited cash burn along with the ability to maintain growth. The digital knowledge company has remaining performance obligations of $293.8 million, up from $256.3 million in the prior FQ1, with the majority set to be recognized over the next year. As long as these RPOs continue to grow, the company is in a strong position.

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This article was written by

Stone Fox Capital profile picture
Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. 
Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in YEXT over the next 72 hours. 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.

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Comments (16)

Stone Fox Capital profile picture
Nice breakout above $18 today.... lets see how the stock closes.
PJS007 profile picture
I tossed in the towel on Yext after two+ years. I see a lot of potential in the product, but after two years, the penetration of Answers is not nearly as widespread as one might expect from a user base which doesn't want to see a list of blue links. Blue links continue to rule, and nicely formatted answers to search queries may actually be considered a nice to have. I'm now concerned about the value proposition, and it appears Yext is also struggling with this messaging given the 90 try before you buy. clearly not a 'no brainer.' With this being the case, if I saw a road to profitability I'd continue to be bullish, but it appears they are not able to control costs or the cost of sales cannot be meaningfully reduced. Lerman may not be the CEO to take Yext to the next level, since he has no track record in optimally running a going concern. I'll continue to keep an eye, but for now I've moved to the sidelines.
Stone Fox Capital profile picture

Guess the market was waiting for you to Sell.
PJS007 profile picture
@Stone Fox Capital - Maybe. No news driving today's gain which I suspect won't last.
Stone Fox Capital profile picture

Technical breakout from previous massive support around $18.

El Financeiro profile picture
I would agree that YEXT has potential. But it’ll take time for the market to catch up to the thesis. And if they are able to control costs it’ll make for a better story.
And the management stops offloading shares every time the price hits north of
All Yext insider sales are on autopilot. Have nothing to do with stock price or company prospects. Much of comp for founders and execs is in stock so they sell periodically to raise cash. I know some of the people so I know this fact
Steelhead15 profile picture
@Stone Fox Capital Hard to buy this one as it fights GOOG, AYX and others.
Stone Fox Capital profile picture
fighting Google how? Their Answers product bypasses Google.
Steelhead15 profile picture
I thought it was another knock off of GA.
How does Alteryx compete with Yext?
I agree. This has room to run. Thanks for the confirmation.
bsamsel profile picture
it is wise to seek out disconfirmations as well
whipsawKid profile picture
bsamsel; are you disconfirming it?
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