Yext, Inc (YEXT) Investment Memo
Meera Equities 10.20.2020
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Investment Thesis
Yext is a true business enterprise value add. Yext is a search experience cloud company, meaning, they work with business and control the facts and deliver brand-verified answers to questions online. They attain this by directing a search to the company’s website. These directions could be for: locations, menus, GPS, apps, search engines, or any other critical fact that a consumer needs an answer for. SEO is a huge factor in driving revenue in a digital world, and Yext is the first line of attack in driving online generated revenue.
Company Description
Yext Inc provides a knowledge engine platform that lets businesses manage their digital knowledge in the cloud and sync it to over 100 services including Apple Maps, Bing, Cortana, Facebook, Google, Google Maps, Instagram, Siri, and Yelp. The company makes search intelligent by helping to provide precise, accurate, and current answers to location-based queries that are conducted across the web and mobile applications and voice and artificial intelligence, or AI, engines. The company derives its revenues primarily from subscription services.
Qualitative
Overview
Sector: Technology
Industry: Software – Infrastructure
Competitors: Birdeye, Reputation.com, Chatmeter
Strategy: Create optimized, updated, and accurate search results for business – straight from their brand.
Yext stresses the importance that all search plays in revenue generation, you never know how a consumer will find you.
They create a one-step authentication for business to ensure they are being portrayed correctly across platforms.
Business Model: SaaS model, deliver brand-verified answers to any consumer need plus back end reporting and consulting.
There are countless intelligent search engines consumers used to discover businesses (above picture for representation)
Yext is the SEO specialist that supports countless intelligent search engines to discover their client’s information from websites, social media, menus, events, and many more
Trusted by local US governments and the WHO to ensure citizens are getting validated information regarding Covid-19.
Subscription Service based revenue system.
Market: Small to medium-sized businesses, concentrated in restaurants, hotels, and clothing.
The value proposition to these industries is immense, providing up to date and accurate information can be the difference between a conversion or not.
It is so important from what is listed above because consumers primarily search around what they want (product) rather than a brand when they are uncertain.
They partner with Taco Bell and if Taco Bell does not have a correct address or if they instituted a new policy, the consumer could be unaware of the changes made or be directed to a non-existent location because of an incorrect address.
Their market is centered around brands controlling their message. This is immensely important to businesses that are shifting or are dynamically changing.
Also operating in the “Online Reputation Management” (ORM) industry where they monitor and respond to customer reviews across all digital ecosystems
Moat: Niche Industry with Diverse Product Offering
Yext was the first to market in the “Digital Knowledge Management” industry, its flagship service.
Have diverse product lines, between search query management, brand analytics reporting, professional consulting, live API access, and website support
Competitors do not have this kind of all-in-one digital marketing/analytics support as Yext has.
X-Factor: Early Adaptors to an Emerging Industry
Before the internet, this type of industry was dominated by public relations specialist firms that reach a broad audience with only a few campaigns.
After the birth of the internet, most PR and communication are brought online on an individual complaint/search basis.
While the relationship management industry is not the same as PR, combining the two for public perception is extremely valuable.
Overall B2B spending on Online Reputation Management grew by 35% in 2019.
Cash Cow: Sticky Platform
In the wake of the pandemic, their revenue increased by 28% signaling this is not a disposable service.
Unique users grew by 38% to over 1,900 total clients.
Yext is fully automated, so when business work with Yext for all intent and purpose, Yext “owns” the listing.
A study showed that when a customer leaves Yext 60% of listings disappear, 35% of the remaining were free of enhanced details or partially stripped, and only 5% were accurate.
This is not on purpose, everything that is changed with Yext is stored and updated through Yext’s platform and when it is taken away everything reverts to the business’s pre-Yext condition.
Growth Opportunities: International Exposure & Growing Integrations
Unique customer additions are the biggest catalyst to sustain growth, as we know it is an incredibly sticky platform.
International revenue has increased by 72% this year to equal 18% of total revenue.
Have added integration with Baidu which increases the value add to businesses to expand borders, recently opened an office in Japan.
Quantitative
Risks
Insider ownership has plummeted from 15% in 2017 to less than 6% currently.
Have yet to turn a profit, they have poured over 90% of their revenue into marketing and sales expenses.
Larger companies with capital can do the work in-house as opposed to outsourcing to companies like Yext.
Learn Something
Importance of Quality True Media: https://www.thedrum.com/opinion/2018/07/09/brand-safety-the-importance-quality-media-fake-news-and-staying-vigilant
Importance of SEO: https://digitalmarketinginstitute.com/blog/what-is-seo-and-why-is-it-important