ON24 beat earnings estimates for the fourth quarter in a row, but its revenue is down 2 percent year-over-year. With executives projecting that the first quarter of 2022 will bring a downturn, are their forecasts of an eventual return to long-term growth convincing?
ON24 announced its quarterly results and full-year roundup on its earnings call yesterday. While ON24 beat earnings estimates for the fourth quarter in a row, there are signs that its business is slowing.
ON24’s total reported revenue for 2021 was $52.0 million, a decrease of 2 percent year-over-year. Throughout the earnings call, however, CEO Sharat Sharan emphasized that any comparison between 2021 and 2020 needs to take into account the unprecedented growth of 2020.
The company’s ARR (Annual Recurring Revenue) reinforces this point: ON24’s 2021 ARR was $171.4 million, an increase of 12 percent year over year, but its ARR for 2020 was $153.4 million, representing an increase of 100 percent over the prior year. For reference, the company’s ARR growth rate for 2019 was 25 percent.
Interestingly, ON24’s biggest source of loss was in its professional services products, which dropped by 41 percent in year-over-year revenue. By comparison, its subscription revenue — which now accounts for 93 percent of its ARR — increased by 9 percent year over year. Both Sharan and Steven Vattuone, Chief Financial Officer for ON24, suggested that their product’s move towards more self-service-friendly models can partially account for this shift.
Predictions of a Temporary Downturn
Both also suggested, however, that the slowing growth will soon transition into a period of decline, with the market for video streaming platforms and virtual event services slumping in the first quarter of 2022. Sharan repeatedly noted that the previous quarter would be the last to benefit from the buoying effect of the so-called “Covid cohort,” the group of event clients who turned to virtual platforms as a stop-gap solution when in-person gatherings were severely limited during the pandemic.
“While we had a solid Q4, our outlook reflects some near-term factors as we transition to a post-pandemic world that are impacting top-line growth,” said Vattuone. He predicts that a temporary downturn will be followed by slower, more traditional growth levels: “We expect Q1 2022 to be the trough with ARR growth to accelerate throughout the year, exiting fiscal 2022 with low teens ARR growth which will further accelerate into fiscal 2023.”
How ON24 Fits Into the Larger Event Tech Market
These talking points echo larger trends within the industry. The market for virtual event tech is showing signs of a slowdown, with some top industry players predicting that those best prepared for long-term success are companies with an established reputation for serving in-person events in a pre-pandemic landscape.
ON24 is in a somewhat unique position, being a company that has specialized in live streaming solutions since 1998. It was providing video streaming services before they took over the event tech landscape over the last two years.
ON24 was in many ways ideally positioned to dominate during the era of the Covid cohort, but how will it fare with what’s projected to be a sweeping return to in-person events? While there is still the possibility of a new Covid variant of concern and the conflict in Ukraine could have destabilizing effects on international travel, most are optimistic that in-person events will return en-masse in 2022 — ON24’s executives included.
Nevertheless, both Sharan and Vattuone were optimistic about the long-term outlook. And although their website describes ON24 as a “hybrid” platform, they do not appear to be staking their future on a combination of mobile app and virtual platform solutions. Instead, they are positioning ON24 as an online solution for driving up the sales pipeline for major enterprises. To help support this assertion, their investor’s presentation deck points to research from Gartner, McKinsey & Company, and Forrester, all of which suggest that B2B sales and marketing is increasingly moving online.
According to Sharan, clients are increasingly looking to evaluate and finalize purchases online, therefore marketing campaigns and customer communications should follow. A recent study by Emerald suggested a similar trend, noting that the sales pipeline from events is projected to outpace the growth in attendance numbers, all while an increasing number of attendees are calling for event platforms to provide e-commerce solutions.
A Stabilizing Market Shifting Towards Enterprise Clients
Another factor that Sharan emphasized was a reduction in churn paired with an increasingly high proportion of top-tier customers. While the Covid cohort brought with it unprecedented growth, it also caused a surge in short-term contracts prone to lapse in renewals. As overall growth slowed, ON24’s customer retention rate improved steadily over 2021. Sharan predicts the trend will continue.
Further, ON24 is seeing its highest growth rate among mid- to large-enterprise customers. Last year saw a 21 percent increase in customers contributing $100,000 or more in ARR, and those with an ARR of over $1 million increased from 14 in 2020 to 19 in 2021.
Whether ON24’s predictions of long-term growth come to fruition or not, it is likely that those who enjoyed a sizable market share in a pre-pandemic landscape will survive the declining influence of the Covid cohort. A sustainable business model in the pre-pandemic landscape is probably a good predictor of long-term stability.