Ooma Inc.

Ooma Inc. (NYSE: OOMA), through smart cloud-based software as a service platform, delivers communications services and related technologies to companies of all sizes and residential clients. Ooma Business, Ooma Office, Ooma Enterprise, and Ooma AirDial are some of the company's offerings. The company provides a variety of solutions to meet the demands of each business, as well as individual assistance to help customers adopt and manage Ooma services.

Key highlights

• Constant Increase In annual and quarterly revenue: Annual revenues have been in an uptrend for the last few years with FY2022 revenues earned being USD 192.3 million compared with USD 168.9 million a year ago. Similarly, quarterly revenue increased to USD 50.5 compared with USD 44.3 million for the same quarter YoY, registering an increase of 14%.

Source: Company file

• Up trending key metrics: In FY22, ARPU improved from USD 11.95 to USD 13.12, gaining 9.7% YoY. The firm claims to have a disruptive cost structure, as evidenced by the 73% margins saved on ARPU, implying that out of the USD13.12 revenue, the company saves USD 9.58, providing it a competitive edge. Furthermore, Ooma Inc. released a Net Dollar Subscription Retention Rate (NDR) of 98% in FY22, increasing from 96% a year ago.

Source: Company Filing 

• Strong financial position: Ooma Inc.’s cash and investments increased from USD 28.3 million in FY21 to USD 31.3 million in FY 22, indicating an increase of 10% even with an increased capital spending of USD 4.2 million for the year. Cash from operations increased to USD 6.7 million in FY 22 from USD 4.4 million a year ago.
• Weak Outlook: Ooma Inc. in its annual report expects its subscription gross margins to increase from 73% currently to 75%-80% in the near-term future. While sales and marketing costs are expected to increase in the mid-term from 29% to around 35%. Adjusted EBITDA margins are expected to decrease in the near-term future with approx. 37% fall to 5% margins.
• Bearish technical analysis: A bearish indicator is that the stock is now trading below its critical short-term (50-day) and long-term (200-day) SMA support levels. The stock is now trading towards the bottom of its 52-week range of USD 12.70 to USD 24.90. In the last six and twelve months, the stock price of OOMA has dropped 45.30 % and 18.06 %, respectively.

One-year technical Price Chart (as of 29 April 2022, at 7:45 am PDT ). Source: REFINITV, Analysis by Kalkine

Conclusion

Ooma Inc.’s performance has been in an uptrend for the past few years but there are concerns over the weak outlook and OOMA stock’s 45.30% drop in the last six months. Given the stock's considerable price fluctuation over the last year and poor outlook, we propose a "Watch" rating on the stock at its current price of USD 13.01 on April 29, 2022, at 7:45 am PDT. 

Technical Analysis Summary

* Current price as of April 29, 2022, at 07:45 am PDT

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.