On24(ONTF) SaaS Stock Analysis
We dive into a SaaS Digital Experience leader with a platform for customer engagement, sales, and marketing products that are deeply integrated, real-time, enriched with actionable analytics/signals
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Industry Overview
B2B sales and marketing has shifted away from traditional approaches, such as “cold calling,” “snail mail,” industry networking events and in-office visits, to more scalable, digital-based approaches. Going forward, B2B sales interactions between suppliers and buyers are expected to increasingly occur in digital channels. As they transition to digital-based approaches, businesses are struggling to achieve deep levels of personalized engagement and interactivity.
The imperative to optimize digital sales and marketing investments to drive revenue conversion has become more important as businesses accelerate digital transformation initiatives in response to the COVID-19 pandemic. The following key trends are impacting sales and marketing strategies today:
Personalized and interactive digital customer engagement at scale is the new imperative
Democratization of content has led prospective customers to self-educate
Traditional automated marketing approaches are increasingly ineffective
Data privacy requirements are constraining automated digital marketing
Failure to create content-rich, interactive experiences for prospective customers.
Limited opportunity for engagement, resulting in less prospective customer data.
Ineffective insights to convert prospects into customers.
Inability to utilize behavioral insights to dynamically personalize content.
In-person events are resource-intensive and exist in a discrete moment.
Mission
Our mission is to transform the way businesses drive revenue and customer engagement through data-rich digital experiences.
I love this mission statement as it’s very simple and gives a guide as to what exactly On24 stands for, driving revenue and engagement using data.
Business Overview
On24 provides a leading, cloud-based digital experience platform that enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences, and multimedia content experiences. On24’s portfolio of interactive, personalized, and content-rich digital experience products creates and captures actionable, real-time data at scale from millions of professionals every month to provide businesses with buying signals and behavioral insights to efficiently convert prospects into customers. On24 is strategically positioned to help businesses and their sales and marketing organizations make this transition. On24 provides an innovative way both to scale digital marketing and deepen prospective customer engagement.
On24 Platform & Products
On24’s leading cloud-based digital experience platform enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences, and multimedia content experiences that are backed by analytics and an ecosystem of third-party integrations.
ON24 Experience Products
On24’s experience products contain a robust set of capabilities that make it simple for customers to build, design, manage and scale live, interactive webinar experiences, large-scale virtual event experiences, rich multimedia content hub experiences, and personalized content experiences. Any business user can use the platform; no code or technical expertise is required.
On24 has designed experiences to be equally easy for customers’ audiences of prospective customers to access and guide their own self-education process. Customers’ audiences of prospective customers can choose to engage with multiple points of interaction and content resources within an ON24 Experience and move seamlessly through a variety of ON24 Experiences. To further remove friction, audience members do not need any downloads or plug-ins, can use any web browser, and can access experiences from a desktop, mobile or tablet device.
Live Experiences: ON24 Elite
ON24 Elite gives customers a high-impact, cost-efficient, digitally native way to engage hundreds and thousands of their prospective customers simultaneously.
An ON24 interactive webinar experience is fully customizable and enables customers to combine a video or audio-based presentation with supporting slide materials, video clips, or screen-sharing alongside dynamic interactions including live question and answer messaging, group chats, real-time surveys and polls, and additional content resources. Customers can drive high-intent calls-to-action for their prospective customers to book a sales meeting or request a demo.
Live Experiences: ON24 Virtual Environment
ON24 Virtual Environment is built to host large-scale online events and provide a single source for measurement and analytics. It powers multi-session virtual event experiences that can be scheduled as live events and maintained as ongoing on-demand events or in an immersive training content library. Simulating an in-person conference, tradeshow, or training center, ON24 Virtual Environment houses multiple tracks of interactive webinar-based keynotes and breakout sessions powered by ON24 Elite alongside participant networking, virtual breakout meetings, and virtual vendor booths.
All interactions across the ON24 Virtual Environment and within the individual ON24 Elite-powered webinar-based sessions are captured and unified, providing a powerful set of event analytics.
Always-On Experiences: ON24 Engagement Hub
ON24 Engagement Hub is an online resource portal product that customers use to provide rich content experiences for their prospective customers to find, consume and engage with interactive webinar experiences and other multimedia marketing content, such as videos and whitepapers, in a single online destination.
With out-of-the-box features that include branding, search, categorization, website embedding, and pre-set content layouts, ON24 Engagement Hub provides a simple and efficient way for customers to seamlessly publish, curate, and promote their interactive webinar experiences alongside other marketing content that they upload and host inside the On24 platform.
Personalized Experiences: ON24 Target
ON24 Target is a personalized marketing product that gives customers the ability to easily build, curate, and disseminate interactive webinar and video experiences and other multimedia content to distributed audience segments with relevant messaging, offerings, and calls-to-action.
ON24 Intelligence
ON24 Intelligence is the analytics backbone that runs across the On24 platform and provides customers with first-person data, analytics, benchmarking, and reporting. These insights and reports are available to all customers and measure analytics at the account level, for each platform experience, for each hosted content asset, and for each prospective customer who engages with an experience. Customers are able to easily understand the overall performance of their ON24 experiences in a dashboard-level view and make comparisons to industry benchmarks for future improvement.
ON24 Engagement and Prospect Analytics
The ON24 engagement and prospect analytics are powered by On24’s proprietary algorithms and AI/ML capabilities. The prospect analytics measure engagement levels of individual prospective customers to enable customers to report, qualify, prioritize and score their prospective customers’ intent to make a purchase. Engagement analytics tools provide customers the ability to report, measure, and compare the engagement levels of their ON24 Experiences and multimedia assets hosted on the On24 platform both in aggregate and individually.
ON24 Advanced Analytics
ON24 Advanced Analytics provides customers with an additional set of pre-configured reports that enable customers to understand their most engaged prospective customers, provide a view of where prospective customers are in the sales funnel, and give analysis across poll and survey responses.
ON24 AI/ML Engine
ON24 AI/ML engine leverages the data collected by or on behalf of customers through On24 to enable better prediction of which content will drive the most engagement for individual prospects and customer segments, thus driving further interaction data and creating a continuous network effect of higher customer engagement that leads to the ability to deliver content that is optimized to drive more engagement.
ON24 Connect
ON24 Connect is an ecosystem of third-party application integrations and APIs that enable the first-person insights generated by ON24 Intelligence to be extracted and leveraged across customers’ business systems for more intelligent sales and marketing.
APIs
On24’s broad set of APIs enable customers, partners, and a select set of third-party developers to use ON24 Intelligence in their business applications.
Marketing Automation, CRM, and BI Platform Integrations
Through On24’s ecosystem of third-party integrations, customers can seamlessly integrate their first-person engagement data with other business systems, predominantly marketing automation, CRM, and BI platforms, including integrations with Adobe Marketo Engage, Oracle Marketing Cloud (Eloqua), and Salesforce Marketing Cloud (Pardot).
On24 Business Model
On24 generates revenue from the sale of subscriptions to the On24 digital experience platform. Subscription revenue is driven primarily by the number of paid subscriptions to ON24 Elite, ON24 Virtual Environment, ON24 Engagement Hub, and ON24 Target. Subscriptions are priced based on the number of workspaces, logins, modules, licenses, and other platform capacity factors. In addition to subscription services, On24 generates revenue from the sale of professional consulting services to manage, monitor, and produce experiences run by customers, implement the On24 platform, and provide premium support services. The terms of subscription agreements are primarily annual and, to a lesser extent, multi-year.
ON24 TAM
On24’s TAM is $42 billion worldwide annually out of which the US is $21 billion.
This was calculated by initially estimating the total number of companies that On24 can support in the United States across separate bands measured by the number of employees: Enterprise, which includes companies with more than 2,000 employees, and Commercial, which includes companies with less than 2,000 employees, which was further divided into Mid-Market companies with 200-1,999 employees, and small and midsize, or SMB, companies with 50-199 employees, using data from the U.S. Census Bureau for 2017.
On24 then applies an average annual value to the companies in each band. This value was calculated using internally generated data for annual recurring revenue, or ARR, as of June 30, 2020, for the top 25% of On24’s customers by ARR that subscribe to two or more of their products, within each of the Enterprise and Mid-Market bands, and the top 25% by ARR of all customers within the SMB band.
Multiplying the total number of companies within each band by the calculated annual value for that band gives the TAM.
On24 Growth Strategies
Drive new customer acquisition - On24’s market is still relatively underpenetrated and that through scaling sales force and through specialized and aligned sales teams focused on the Enterprise and Commercial markets globally, they can accelerate new customer acquisition across the substantial Commercial market.
Upsell/Cross-sell/Expand within existing customers
Continue to increase attachments and develop new solutions for specific use cases - For example, On24 has developed a differentiated feature set for customers that use On24 to conduct online continuing education programs and issue accredited certifications.
Expand into new regions to launch additional platform capacity in Europe to support European/International expansion.
Identify and pursue inorganic growth opportunities
Insider Ownership
On24 has high insider ownership at 28%. The management is highly invested in their own business, so we can see that they have a long-term vision and focus.
Competition
On24 competes for customers with a number of different types of companies that offer a variety of products and services, including meeting tools, webinar software, virtual event software, video portal software, content management software, physical events, physical event software, and digital marketing tools. Competitors vary in size and in the breadth and scope of the products and services they offer, for example, a number of web-based meeting and webinar software products are offered by companies such as Zoom, LogMeIn, Intrado, Microsoft, Cisco, Google, Cvent, and Amazon. Many of these products have significantly lower prices.
Competitive Advantage
First Mover Advantage - On24 has created one of the first cloud platforms for businesses to deliver interactive, data-driven webinar experiences, virtual event experiences, and multimedia content experiences.
Data Network Effects Flywheel - On24’s cloud-based platform powers customers with several key marketing capabilities: creating digital experiences, deploying them at scale, collecting numerous data points on their prospective customers, and leveraging this data to further personalize subsequent experiences. On24 enables highly interactive experiences, giving customers access to behavioral data that signals buying intent. By leveraging AI/ML capabilities, customers can derive valuable and actionable insights in order to optimize their sales and marketing strategies.
Deep Integrations with Marketing Automation, CRM, and BI Platforms, Functionality in providing rich, real-time, engaging, interactive digital experiences, and Ability to gather real-time data insights for marketers
Key SaaS/Financial Metrics
Revenue ARR TTM - $163M
Revenue 2020 - $156M
Revenue Growth - 32%(From 2021 Guidance)
TAM - 21B(US), 42B(Global)
Subscription Revenue as part of Total revenues - 78%
Gross Margin - 78%
Free Cash Flow as part of Total revenues - 23%
Net Expansion Rate - 149%(2020), 108%(2019), 107%(2018)
Rule of 40 - 50%+ (32% growth + 23% FCF)
Total customers - 1900+ as of Dec 2020
EV/ARR - 9x
EV/Revenue NTM(Assuming 30%growth) - 6.8x
Final Thoughts
On24 is a leader in customer engagement, sales, and marketing with a SaaS cloud platform that has deep integrations with partners, differentiated analytics, metrics, and insights. On24 is a high-growth, highly profitable business with a large runaway for further growth.
Note: A lot of information in this article is compiled from On24’s website, SEC filings, and recent presentations.