Communications platform-as-a-service company Bandwidth (NASDAQ: BAND) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 27% year on year to $210 million. On the other hand, next quarter’s revenue guidance of $169 million was less impressive, coming in 8.1% below analysts’ estimates. Its non-GAAP loss of $0.06 per share was significantly below analysts’ consensus estimates.
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Bandwidth (BAND) Q4 CY2024 Highlights:
- Revenue: $210 million vs analyst estimates of $203.8 million (27% year-on-year growth, 3% beat)
- Adjusted EPS: -$0.06 vs analyst estimates of $0.39 (significant miss)
- Adjusted EBITDA: $23.42 million vs analyst estimates of $20.37 million (11.2% margin, 15% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $750 million at the midpoint, missing analyst estimates by 1.5% and implying 0.2% growth (vs 24.4% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $86 million at the midpoint, below analyst estimates of $86.93 million
- Operating Margin: -1.3%, up from -6.1% in the same quarter last year
- Free Cash Flow Margin: 14.5%, up from 7.3% in the previous quarter
- Market Capitalization: $502.6 million
"2024 was a transformative year for Bandwidth, delivering record financial results and groundbreaking product innovation," said David Morken, CEO of Bandwidth.
Company Overview
Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.
Communications Platform
The first shift towards voice communication over the internet (VOIP), rather than traditional phone networks, happened when the enterprises started replacing business phones with the cheaper VOIP technology. Today, the rise of the consumer internet has increased the need for two way audio and video functionality in applications, driving demand for software tools and platforms that enable this utility.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last three years, Bandwidth grew its sales at a 15.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our benchmark for the software sector, which enjoys a number of secular tailwinds.
This quarter, Bandwidth reported robust year-on-year revenue growth of 27%, and its $210 million of revenue topped Wall Street estimates by 3%. Company management is currently guiding for a 1.2% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 2% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Bandwidth is efficient at acquiring new customers, and its CAC payback period checked in at 37.8 months this quarter. The company’s relatively fast recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments. 
Key Takeaways from Bandwidth’s Q4 Results
We were happy that Bandwidth's revenue outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 11.7% to $16.16 immediately following the results.
Bandwidth didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
