Stock Story -
Home warranty company Frontdoor (NASDAQ:FTDR) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue up 8% year on year to $366 million. On the other hand, next quarter's revenue guidance of $375 million was less impressive, coming in 4% below analysts' estimates. It made a non-GAAP profit of $0.20 per share, improving from its profit of $0.13 per share in the same quarter last year.
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Frontdoor (FTDR) Q4 FY2023 Highlights:
- Revenue: $366 million vs analyst estimates of $359.5 million (1.8% beat)
- EPS (non-GAAP): $0.20 vs analyst estimates of $0.04 ($0.16 beat)
- Revenue Guidance for Q1 2024 is $375 million at the midpoint, below analyst estimates of $390.5 million
- Management's revenue guidance for the upcoming financial year 2024 is $1.83 billion at the midpoint, missing analyst estimates by 2.9% and implying 2.5% growth (vs 7% in FY2023)
- Management's adjusted EBITDA guidance for the upcoming financial year 2024 is $355 million at the midpoint, beating analyst estimates of $342 million (3.9% beat)
- Free Cash Flow of $54 million, up 184% from the previous quarter
- Gross Margin (GAAP): 48.4%, up from 42.5% in the same quarter last year
- Market Capitalization: $2.63 billion
Specialized Consumer ServicesSome consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Frontdoor's annualized revenue growth rate of 7.2% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Frontdoor's recent history shows the business has slowed as its annualized revenue growth of 5.4% over the last two years is below its five-year trend.
This quarter, Frontdoor reported solid year-on-year revenue growth of 8%, and its $366 million of revenue outperformed Wall Street's estimates by 1.8%. The company is guiding for revenue to rise 2.2% year on year to $375 million next quarter, slowing from the 4.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 6.1% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Frontdoor has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.9%, subpar for a consumer discretionary business.
Frontdoor's free cash flow came in at $54 million in Q4, equivalent to a 14.8% margin and in line with the same quarter last year.
Key Takeaways from Frontdoor's Q4 Results We liked how Frontdoor beat analysts' revenue and EPS expectations this quarter. On the other hand, its full-year revenue guidance missed and its revenue guidance for next quarter came in slightly below Wall Street's estimates as well. However, adjusted EBITDA guidance for the full year came in above expectations so this could blunt the blow of worse-than-expected revenue guidance. Overall, this was a mixed quarter for Frontdoor. The stock is flat after reporting and currently trades at $33 per share.
