What Happened:

Shares of restaurant software company (NYSE:OLO) jumped 12.8% in the pre-market session after the company reported a "beat and raise" quarter. First quarter results exceeded analysts' billings and revenue expectations. The company continued to expand its footprint, adding 1000 new locations during the quarter. For the full year, it expects to add 5000 new locations, showing demand is strong. As a result, guidance was strong, with the revenue forecast for the next quarter being higher than Wall Street's estimates. Similarly, the full-year revenue guidance was raised and came in ahead of consensus. Overall, we think this was a strong quarter that should satisfy shareholders. After the initial pop the shares cooled down to $4.75, up 1% from previous close.

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What is the market telling us:

Olo's shares are not very volatile than the market average and over the last year have had only 18 moves greater than 5%. Moves this big are very rare for Olo and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 12.5% on the news that the company reported its third-quarter results, and it was mostly choppy waters. Olo revised downward its guidance for the addition of new locations on its platform, signaling a slower pace of business expansion. The company now anticipates adding approximately 4,000 to 5,000 net new active locations in 2023, falling short of the earlier target of 6,000 additions for the full year. During the earnings call, Olo mentioned that they faced a longer-than-expected implementation cycle with a major enterprise customer in Q3, which is expected to continue into Q4. Additionally, there was news that Wingstop, representing a small portion of Olo's total revenue (less than 3%) and around 1,800 locations, intends to move away from Olo's platform when their contract expires in Q1 2024. While this is not a large portion of revenue, investors seem nervous that other customers could follow suit. Despite these challenges, Olo's earnings did feature some positive aspects. Their net revenue retention rate and average revenue per user showed significant improvements in the quarter. The company also exceeded analysts' expectations for adjusted operating profit and earnings per share. Looking ahead, the revenue guidance for the next quarter surpassed Wall Street's estimates, and Olo expanded its relationship with FAT Brands, a notable player in the restaurant industry. Overall, though, the results were poor, with the markets likely focused on the revised outlook.

Olo is down 12.5% since the beginning of the year, and at $4.75 per share it is trading 40.6% below its 52-week high of $7.99 from July 2023. Investors who bought $1,000 worth of Olo's shares at the IPO in March 2021 would now be looking at an investment worth $136.40.

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