Yext (YEXT), which made its IPO debut in April 2017, is trading lower today after reporting Q2 (Jul) earnings last night. Since you may not be familiar with Yext, a little background would help. Yext sees itself as a knowledge engine. Its platform lets businesses manage their digital knowledge in the cloud and sync it to over 100 services, including Apple Maps, Bing, Cortana, Facebook, Google, Google Maps, Instagram, Siri and Yelp. Digital knowledge is the structured information that a business wants to make publicly accessible.
For example, in food service, the address, phone number or menu details of a restaurant; in healthcare, the health insurances accepted by a physician or the precise drop-off point of the emergency room at a hospital campus; or in finance, the ATM locations, retail bank holiday hours or insurance agent biographies.
Intelligent search, which are searches of digital knowledge that combine context and intent, has grown significantly in recent years. In particular, searches that return maps in the results have grown significantly with the proliferation of mobile devices and now make up 30% of all mobile searches. For example, searches for categories, such as "restaurants", "wine", "insurance", "wealth advisor" or "doctor", or for specific brands, such as "Marriott", "McDonald's" or "Home Depot", return maps directly in the search results. The source of the results for each of these searches is not a web page—it is structured data. Businesses want their information to be more prominent than that of their competitors when consumers look for them on search platforms. Yext's platform allows consumers to find the businesses that are most relevant to them.
So how does Yext help? The vast majority of digital knowledge provided by searches currently comes from third-party sources such as data aggregators, governmental agencies and consumers. But this merely creates a "best guess" result as it is not provided by the business itself which has the most accurate and timely data about a business. Yext has established direct data integrations between its software and the 100+ members of its PowerListings Network, which includes Apple Maps, Bing, Facebook, Google, Google Maps, Instagram, Yelp and many others.
The bottom line is that businesses can directly control their own digital knowledge rather than leaving it in the hands of third parties. Some of Yext's customers include AutoZone, Ben & Jerry's, Best Buy, Citi, Denny's, Farmers Insurance, H&R Block, HCA, Infiniti, Marriott, Michael's, McDonald's, Rite Aid etc. Yext estimates that there are currently over 100 million potential business locations and points of interest in the world that could benefit from its platform, representing an addressable market, solely with respect to locations, of approximately $10 bln annually.
Turning to the Q2 (Jul) results, Yext reported a non-GAAP loss of $(0.13), at the high end of prior guidance of $(0.15)-(0.13). Yext is not expected to be profitable in the near future, but this loss was narrower than the $(0.22) loss in the prior year period so they are heading in the right direction. A big reason why is because gross margin expanded to 74.1% from 69.3% in the year ago period.
Revenue rose 37.9% year/year to $40.8 mln, which was above prior guidance of $40.0-40.5 mln. In terms of guidance, Yext expects Q3 (Oct) non-GAAP EPS of $(0.14)-(0.12) and revenue of $43.5-44.0 mln, both are in-line with market expectations. For the full year, Yext slightly raised guidance.
Yext managed 22.9 mln attributes and approx 1.2 mln locations on its digital knowledge platform. Also, the company launched the Yext App Directory in JulQ, allowing customers to connect the digital knowledge they are managing within Yext to the other software systems used across their enterprise, including HubSpot, Zendesk, Smartling and Domo. Yext also recently opened an office in Tokyo, Japan, marking the first time Yext's platform will be available to businesses headquartered in Asia.
In sum, investors do not seem too impressed with Yext's JulQ results based on the stock reaction. However, the company did make some progress in JulQ. It opened an office in Japan, launched its App Directory and added over 50 new Enterprise logos. It also built out its salesforce in JulQ with several new hires, including a GVP to lead both its eastern region and the Financial services vertical.
With that said the stock has basically just traded sideways since its IPO debut (priced at $11, opened at $14). From a longer term perspective, Yext sees its addressable market being at least $10 bln and growing. Yext makes the argument that it's the leader in a new category called digital knowledge management and it says it's benefitting from an important macro trend: the rise of intelligent search.