Over the last six months, ON24’s shares have sunk to $5.30, producing a disappointing 18.3% loss while the S&P 500 was flat. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy ON24, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think ON24 Will Underperform?
Even though the stock has become cheaper, we're swiping left on ON24 for now. Here are three reasons why we avoid ONTF and a stock we'd rather own.
1. Declining Billings Reflect Product and Sales Weakness
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
ON24’s billings came in at $39.61 million in Q1, and it averaged 3.3% year-on-year declines over the last four quarters. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect ON24’s revenue to drop by 6%. it’s hard to get excited about a company that is struggling with demand.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
ON24’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between ON24’s products and its peers.
Final Judgment
We see the value of companies addressing major business pain points, but in the case of ON24, we’re out. Following the recent decline, the stock trades at 1.6× forward price-to-sales (or $5.30 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. We’d recommend looking at one of our top digital advertising picks.
Stocks We Like More Than ON24
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