Banking software provider Q2 (NYSE:QTWO) met Wall Street’s Q3 CY2024 revenue expectations, with revenue up 12.9% year over year to $175 million. The company expects revenue next quarter to be around $179.6 million, close to analyst estimates. The GAAP loss of $0.20 per share was 8.5% above analyst consensus estimates.
Is Now the Time to Buy Q2 Holdings? Find out in our full research report.
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Gain: $175 million vs. analyst estimates of $173.5 million (in line)
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EPS: -$0.20 vs. analyst estimates of -$0.22 (8.5% better)
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EVENTS: $32.61 million vs. analyst estimates of $29 million (12.4% better)
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Revenue guidance for Q4 CY2024 is $179.6 million in the middle, about in line with what analysts expected
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Full year EBITDA guidance is in the middle at $123 million, above analyst estimates of $118.2 million
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Gross margin (GAAP): 50.9%, compared to 47.9% in the same quarter last year
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Operating margin: -7.3%, compared to -14.9% in the same quarter last year
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EBITDA margin: 18.6%, compared to 12.7% in the same quarter last year
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Market capitalization: $5.20 billion
“We delivered solid booking success across our businesses in the third quarter, highlighted by six Enterprise and Tier 1 deals, including three with the Top 50 U.S. banks,” said Matt Flake, chairman and CEO of the second quarter.
Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) provides software-as-a-service that enables small banks to offer online banking and consumer lending to their customers.
Consumers today are accustomed to hassle-free digital experiences, from online shopping to ordering food or hailing a taxi. Financial services firms are notoriously risk-averse when adopting modern software, often lacking the resources or competency to develop the digital solutions in-house. This drives demand for software-as-a-service platforms that allow banks and other financial institutions to offer digital services without having to run or maintain them.
Examining a company’s long-term performance can provide clues about business quality. Any company can perform well for a quarter or two, but the best ones grow consistently over the long term. Unfortunately, Q2 Holdings’ revenue grew at a slow annual rate of 12.3% over the past three years. This shows that it has failed to expand in any significant way, a rough starting point for our analysis.
This quarter, Holdings’ year-over-year Q2 revenue growth was 12.9%, and revenue of $175 million was in line with Wall Street estimates. Management currently expects a 10.8% year-over-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow by 10.9% over the next twelve months, a slight slowdown compared to the past three years. This projection is still above the industry average and illustrates that the market is seeing some success for its newer products and services.
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The customer acquisition cost payback period (CAC) represents the months it takes to recoup the costs of acquiring a new customer. Essentially, this is the breakeven point for marketing and sales investments. A shorter CAC payback period is ideal as it implies a better return on investment and better scalability of the business.
Q2 Holdings is efficient at acquiring new customers, and its CAC payback period was 41.7 months this quarter. The company’s performance indicates a relatively solid competitive position, giving it the freedom to invest its resources in new growth initiatives.
We were impressed with how significantly Q2 Holdings exceeded analysts’ EBITDA expectations this quarter. We were also pleased that full-year EBITDA expectations exceeded Wall Street expectations. Overall, we think this was still a solid quarter, with some key positives. The stock rose 3.9% to $94 immediately after the results.
Sure, Q2 Holdings had a solid quarter, but looking at the bigger picture, is this stock a buy? What happened in the last quarter matters, but not as much as business quality and longer-term valuation, when deciding whether to invest in this stock. We cover that in our useful full research report which you can read here. It’s free.
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