Yext (YEXT, Financial) is experiencing a downturn after reporting Q1 results and announcing an acquisition. The company, which helps brands manage their digital presence, missed slightly on EPS. Revenue fell 3.5% year-over-year to $96.0 million, which was in line with expectations. Q2 guidance was disappointing, with downside EPS despite in-line revenue guidance. Full-year EPS guidance was above expectations, but revenue guidance was light.
- Adjusted EBITDA fell 33% year-over-year to $9.6 million, in-line with prior guidance of $9.5-10.0 million. However, Yext projected a sequential decline in Q2 to $8.0-8.5 million, including severance costs related to restructuring. Surprisingly, Yext raised its FY25 adjusted EBITDA guidance to $65-67 million from $60-62 million.
- Last week, Yext announced a 12% workforce reduction and a Reuters report indicated the company was exploring strategic options. Demand for its products remains strong, but Yext is cautious about converting that demand into bookings due to a tough selling environment.
- In Q1, Yext faced headwinds in deal cycles, budget pressures, and scrutiny. Consequently, Yext slowed its sales hiring pace in Q1. It plans to grow its quota-carrying capacity this year, but slower than initially expected. Some deals were pushed from Q1 to Q2 or later in the year. Enterprise IT buyers remain cautious in their spending.
- Yext announced it will acquire Hearsay Systems, a digital client engagement platform for financial services. Hearsay Systems has a significant customer base among leading financial firms. The acquisition aims to combine Yext's digital presence management expertise with Hearsay's compliant engagement offerings across social media, websites, texting, and voice messaging.
Overall, this was a weak quarter for Yext as the company continues to face challenges. The Hearsay deal appears to be contributing to the stock's weakness, not due to a poor strategic fit, but because of its hefty price tag of $125 million, plus an additional $95 million if performance targets are met. With Yext's market cap around $600 million, this is a significant and risky purchase.
The timing of the acquisition is also questionable, coming right after a restructuring and a 12% workforce reduction. Investors may also be concerned that this deal could hinder Yext's potential strategic options, as reported last week, adding to the negative sentiment.
