The only time to eat diet food is while you're waiting for the steak to cook.” ― Julia Child
Today, we take our first look at Olo Inc. (NYSE:OLO), a small cap company helping to digitize and automate the restaurant industry. This cloud concern provides an ordering system that restaurants can integrate into their website, so customers can order off their menu digitally. The company came public late in the first quarter of 2021 as elevated valuations, the stock was priced at over 40 times sales on its debut. Like most of that IPO 'vintage', the stock finds itself deep in 'Busted IPO' territory. Are the shares oversold now, or is there still more pain ahead for shareholders? An analysis follows below.
Olo Inc. is headquartered in New York City. The company provides a software-as-a-service [SaaS] platform for multi-location restaurants in the United States. Olo offers a variety of modules that provide unique solutions for tasks such as ordering, delivery, payment and customer management. The stock currently trades just above ten bucks a share and sports an approximate $1.6 billion market cap.
First Quarter Results
On May 10th, the company posted its first quarter numbers. Olo had a non-GAAP profit of one penny a share as revenues rose nearly 19% on a year-over-year basis to nearly $43 million. Both top and bottom line numbers slightly beat the analyst consensus.
It is important to note that on a GAAP basis, the company posted a net loss of $11.5 million, or seven cents a share. Free cash flow for the quarter was a negative $3.4 million. In addition, average revenue per unit or ARPU decreased 2% year-over-year, even as it rose 2% sequentially to approximately $516.
The company has a large network of partners, brands, and customers which continues to expand. Locations grew some 13,000 to 82,000 in the first quarter.
Leadership now sees revenue between $195 million to $197 million for FY2022, where it expects to turn a small profit on a non-GAAP basis.
The analyst community remains sanguine on the company's prospects. Since first quarter earnings posted, four analyst firms including RBC Capital and Piper Sandler have reissued Buy ratings on the stock. Albeit, all four also contained downward price target revisions. Price targets proffered ranged from $12 to $21 a share.
Just over 20% of the outstanding float of the shares are held short. The company ended the first quarter with just over $460 million of cash and marketable securities on its balance sheet after posting a GAAP net loss of $11.5 million. Olo has no long-term debt. Despite the large drop in the shares, insiders continue to be consistent and frequent sellers of the stock here in 2022 and have disposed of more than $500,000 worth of shares so far in June.
The current analyst consensus has the company making four cents a share of profit in FY2022 and revenues rise just over 30% to $195 million. Similar growth is seen in FY2023 as sales hit $250 million and the company posts a 14 cent a share profit.
The company's valuation is now just over eight times forward sales, approximately 20% of the valuation based on this metric as when it came public. Accounting for cash, that shrinks to around six times forward revenues. There is no doubt the company is aiming at a large market. Only 15% of restaurant orders are currently digitized, a percentage that will continue to grow over time.
This large market has attracted myriad competitors. My personal preference and the only name I hold in this space is Toast, Inc. (TOST) which I profiled in March and have a small covered call position within. The stock has a slightly lower valuation based on price to sales and has gotten rave reviews from the restaurant owners I know. Sales growth rates also much larger. The stock has held up well since then despite a beneficial owner cashing out a huge chunk of shares, and the equity has approximately one fourth the short interest of Olo, Inc.
To eat is a necessity, but to eat intelligently is an art.”― François de la Rochefoucauld
Author's note: I present and update my best small-cap Busted IPO stock ideas only to subscribers of my exclusive marketplace, The Busted IPO Forum. Try a free 2-week trial today by clicking on our logo below!
This article was written by
The Busted IPO Forum founded by Bret Jensen, is a hypothetical $200K portfolio built of stocks that have been public for 18 months to five years that are significantly under their offering price. Many times after the initial analyst hyperbole has died and lockups have expired, these same companies can be had for .30 to .50 cents on the dollar from when the shares went public. As lucrative as this niche has been for my portfolio over the years, a service or newsletter has not existed that covered this segment of the market -- until now! The goal in creating the Busted IPO Forum is to build a portfolio of 15-20 small cap and mid cap busted IPOs which consistently outperform the Russell 2000 over time. As of 07/02/2021 our model portfolio has generated an overall return of 73.84% substantially above the 52.37% gain from the Russell 2000 over the same time frame.
• • •
Specializing in profiling high beta sectors, Bret Jensen founded and also manages The Biotech Forum, The Insiders Forum, and the Busted IPO Forum model portfolios. Finding “gems” in the biotech and small-cap stock sectors, these highly volatile spaces proven hugely successful have empowered Bret Jensen's own investing portfolio.
• • •
Learn more about Bret Jensen's Marketplace offerings:
Disclosure: I/we have a beneficial long position in the shares of TOST either through stock ownership, options, or other derivatives. 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.