Communications platform-as-a-service company Bandwidth (NASDAQ: BAND) reported results ahead of analysts' expectations in Q1 CY2024, with revenue up 24.1% year on year to $171 million. On top of that, next quarter's revenue guidance ($173 million at the midpoint) was surprisingly good and 4.1% above what analysts were expecting. It made a non-GAAP profit of $0.27 per share, improving from its profit of $0.04 per share in the same quarter last year.

Is now the time to buy Bandwidth? Find out by accessing our full research report, it's free.

"We've had an impressive start to 2024, exceeding our initial forecasts and raising our projections for the remainder of the year. Our direct-to-enterprise business has shown robust growth, marking a 20 percent increase in the first quarter," said David Morken, CEO of Bandwidth.

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

As you can see below, Bandwidth's revenue growth has been mediocre over the last three years, growing from $113.5 million in Q1 2021 to $171 million this quarter.

This quarter, Bandwidth's quarterly revenue was up a very solid 24.1% year on year, above the company's historical trend. However, its growth did slow down compared to last quarter as the company's revenue increased by just $5.65 million in Q1 compared to $13.37 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Bandwidth is expecting revenue to grow 18.6% year on year to $173 million, improving on the 6.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.3% over the next 12 months before the earnings results announcement.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Bandwidth burned through $4.41 million of cash in Q1 , increasing its cash burn by 59.6% year on year.

Bandwidth has generated $25.6 million in free cash flow over the last 12 months, or 4% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Bandwidth's Q1 Results

This was a rare beat and raise quarter. Specifically, it was great to see Bandwidth's optimistic revenue guidance for next quarter, which exceeded analysts' expectations. Full year revenue guidance was raised. We were also glad its revenue outperformed Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 7.1% after reporting and currently trades at $22 per share.

Bandwidth may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.