Executive Summary / Key Takeaways

• ON24 is strategically pivoting its cloud-based intelligent engagement platform towards AI-driven innovation and a focused enterprise go-to-market approach, particularly in regulated industries, aiming to return to ARR growth after recent declines.
• The company's differentiated technology, centered on capturing deep first-party engagement data and leveraging AI (like AI-powered ACE), provides unique insights and content automation capabilities that offer tangible ROI for B2B sales and marketing, setting it apart from broader collaboration tools.
• Despite recent revenue and ARR declines reflecting a challenging macroeconomic environment and pressure on marketing budgets, ON24 has demonstrated significant operational discipline, achieving positive adjusted EBITDA and free cash flow for multiple consecutive quarters and implementing substantial cost reductions.
• Improving gross retention rates, increasing multi-year contracts, growing multi-product adoption, and a notable trend of customer "winbacks" signal a stabilization in the installed base and validate the value proposition of ON24's platform, especially its newer AI features.
• Management's guidance for 2025 anticipates a return to positive adjusted EBITDA and free cash flow for the full year, with sequential improvement in Core ARR performance expected, particularly in the second half, although macro uncertainty necessitates a conservative top-line outlook.

The Evolution of Engagement: ON24's Quest for Intelligent Growth

ON24, Inc. stands at a pivotal juncture in its history, transforming from a provider of per-event webinar services into a cloud-based intelligent engagement platform designed to empower B2B sales and marketing organizations. Its core mission is to enable businesses to capture and act on connected insights at scale, moving beyond traditional one-way communication to foster interactive, personalized digital experiences that generate valuable first-party data. This data provides crucial buying signals and behavioral insights, essential for efficiently converting prospects into customers.

The company's journey began in 1998, but a significant strategic shift occurred in 2013 with the launch of ON24 Elite, marking its transition to a Software-as-a-Service (SaaS) model. This foundational product, focused on live, interactive webinars, became the cornerstone of what is now the Core Platform. Over the years, ON24 expanded its suite with products like Engagement Hub and Target for content experiences, Breakouts and Go Live for enhanced interactivity and self-service events, and Forums for video-based discussions. International expansion followed, establishing a presence in key global markets, complemented by the 2022 acquisition of Vibbio to bolster video capabilities.

While the pandemic era saw significant tailwinds and revenue growth, subsequent years presented challenges as macroeconomic pressures tightened marketing budgets and a partial shift back to in-person events occurred. This environment intensified competition from a diverse landscape of players, ranging from broad collaboration tools like Zoom (ZM), Microsoft Teams (MSFT), and Cisco's Webex (CSCO) to specialized webinar providers like GoToWebinar (GOTO), as well as marketing automation platforms and even physical event organizers. Many of these competitors boast larger customer bases, greater brand recognition, and significantly deeper financial resources. Some offer lower-priced or free alternatives, creating pricing pressure.

In response, ON24 has strategically sharpened its focus. The company is concentrating on the enterprise market, particularly within highly regulated industries such as life sciences and financial services, where its platform's robust compliance features and data security are critical differentiators. Simultaneously, ON24 has embarked on a mission of relentless innovation, placing artificial intelligence at the core of its platform's future.

The Data Moat: ON24's Technological Edge

At the heart of ON24's value proposition is its ability to capture rich, real-time, first-party engagement data from millions of professionals interacting on its platform. Unlike standard meeting or webinar tools that primarily track attendance, ON24's platform records granular behavioral data – what content was consumed, for how long, what questions were asked, polls answered, resources downloaded, and more. This data forms a powerful "data moat," providing businesses with unparalleled insights into audience intent and interests.

Building on this foundation, ON24 launched its AI-powered Analytics and Content Engine (ACE) in January 2024. ACE is designed to translate this deep engagement data into actionable outcomes and scalable content creation. Its key capabilities include:

• Hyper-Personalization: Enabling businesses to dynamically tailor digital experiences based on individual or segment-specific behaviors and profiles.
• AI-Generated Content: Automatically transforming live and on-demand experiences into derivative assets like videos, summaries, blogs, and social posts, significantly accelerating content production.
• Automated Campaigns and Nurture: Streamlining the process of delivering personalized content streams to prospects and customers based on their engagement data.
• Performance Insights: Leveraging AI to surface key trends and "Smart Tips" from engagement data, guiding sales and marketing teams on how to optimize future interactions and campaigns.

While precise, directly comparable quantitative metrics on AI performance relative to all competitors are challenging to ascertain, management commentary highlights that customers using AI-powered ACE have typically seen improvements in conversion rates and average reach per campaign. By Q1 2025, a low-teens percentage of ON24's customer base was paying for ACE, and it contributed over 20% of growth ARR bookings in Q4 2024, indicating early commercial traction. Upcoming AI innovations like ON24 IQ, aimed at automating repetitive tasks like Q&A, and enhanced multi-lingual capabilities further underscore the commitment to leveraging AI to drive efficiency and global scale for enterprise clients.

This technological focus provides ON24 with a distinct competitive advantage. While larger competitors like Zoom and Microsoft offer broad collaboration suites with increasing AI features, ON24's specialization in intelligent engagement and its deep first-party data capture position it uniquely for B2B marketing and sales use cases. Its platform is purpose-built for generating actionable insights and automating content workflows, areas where broader tools may lack depth. This technological edge is crucial for retaining customers, attracting new ones seeking higher ROI from their digital efforts, and commanding pricing power in its niche.

Performance Under Pressure: Stabilization and Efficiency Gains

ON24's recent financial performance reflects the dual reality of navigating a challenging market while executing on its strategic pivot. Total revenue in Q1 2025 was $34.7 million, an 8% decrease compared to $37.7 million in Q1 2024. Core Platform revenue, the company's focus, also saw a 7% year-over-year decline to $34.2 million. This revenue contraction is a direct consequence of lower net customer count and reduced Annual Recurring Revenue (ARR). Total ARR stood at $128.2 million as of March 31, 2025, with Core ARR at $125.9 million, representing a sequential decline from Q4 2024.

However, beneath the top-line pressure, operational improvements are evident. The company has aggressively managed costs, implementing multiple workforce reductions, including additional measures in Q1 2025. This discipline resulted in a 7% decrease in the cost of revenue and a 10% reduction in sales and marketing expenses in Q1 2025 compared to the prior year period. Research and development and general and administrative expenses also saw double-digit percentage decreases, partly due to lower stock-based compensation and active cost management.

These efforts have helped mitigate net losses and drive profitability on a non-GAAP basis. The GAAP net loss in Q1 2025 was $8.7 million, an improvement from a $10.7 million loss in Q1 2024. Crucially, ON24 has achieved positive adjusted EBITDA for multiple consecutive quarters and generated positive free cash flow for the fifth consecutive quarter in Q1 2025 ($1.9 million including restructuring/legal costs, $2.8 million excluding). This financial discipline, resulting in total non-GAAP expenses being almost $20 million lower in 2024 than in 2023, provides a stable foundation despite the revenue headwinds.

Key operational metrics also signal stabilization. In-period gross retention in Q1 2025 reached its highest level in four years, showing sequential improvement. The company is seeing a notable trend of customer "winbacks," with Q1 2025 marking the largest quarter for boomerang customers returning after trying alternative solutions. The percentage of ARR in multi-year contracts increased to over 50% in Q1 2025, a new high, and multi-product adoption also reached an all-time high. These indicators suggest that while acquiring new customers remains challenging in the current environment, existing and returning customers are finding increasing value in the ON24 platform, particularly its expanded capabilities and AI features.

The balance sheet remains strong, with $181 million in cash, cash equivalents, and marketable securities as of March 31, 2025. The company has low debt and ample liquidity, reinforced by an undrawn revolving credit facility. This financial strength supports strategic capital allocation, including the recently authorized $50 million share repurchase program, signaling management's confidence in the business and belief that the stock is undervalued.

Outlook: A Cautious Path Towards Growth

Management's outlook for 2025 reflects a blend of cautious optimism regarding market conditions and confidence in the company's strategic execution. The guidance assumes macroeconomic conditions do not worsen, acknowledging the inherent uncertainty, particularly in the second half of the year.

For Q2 2025, ON24 expects total revenue between $34.5 million and $35.1 million, with Core Platform revenue between $33.8 million and $34.4 million. This implies a continued year-over-year decline but a relatively stable sequential performance. Gross margin is projected at 76%. Profitability is expected to remain positive on an adjusted EBITDA basis, with a non-GAAP operating loss between $0.7 million and $1.5 million and non-GAAP EPS between $0.00 and $0.02. Core ARR is projected to see a sequential decrease of $0.5 million to $1.5 million from Q1 levels.

For the full year 2025, total revenue is guided to be between $136 million and $139 million, with Core Platform revenue between $133.7 million and $136.7 million. Gross margins are expected to be around 76%. Management anticipates being adjusted EBITDA positive for the full year and in each quarter starting from Q2, and expects to deliver positive free cash flow (excluding certain non-GAAP items). While no specific full-year ARR target was provided due to visibility constraints, the revenue guidance implicitly assumes improved Core ARR performance in the second half of the year, with ending 2025 Core ARR expected to be higher than ending 2024 levels (assuming a 1% to 2% increase).

The path to returning to ARR growth hinges on several factors: continued improvement in gross retention and downsell performance, successful new business acquisition (particularly in the enterprise and regulated industries), and expanding adoption of AI-powered ACE. Management expects sequential ARR improvement throughout 2025, with more significant progress anticipated in the latter half. The focus on mission-critical use cases, the differentiated AI technology, and the improving retention metrics are seen as key drivers to counteract market pressures and competitive dynamics.

Risks to this outlook include a potential worsening of macroeconomic conditions, intense competition leading to further pricing pressure or market share loss, challenges in executing the refined go-to-market strategy, slower-than-expected adoption of new AI features, and operational risks such as service disruptions or cybersecurity incidents. The ongoing IPO class action litigation also presents a potential, though currently unquantifiable, risk.

Conclusion

ON24 is executing a focused strategy to navigate a challenging market by leveraging its core strengths: a differentiated platform built on first-party engagement data, a growing suite of AI-powered tools, and a targeted approach to the enterprise and regulated industries. While recent financial results reflect the headwinds of reduced marketing spend and intense competition, the company has demonstrated impressive operational efficiency, achieving consistent profitability on an adjusted basis and generating positive free cash flow.

The improving trends in customer retention, multi-year contracts, and winbacks, coupled with the early traction of AI-powered ACE, suggest that ON24's platform continues to deliver significant value, particularly for sophisticated B2B use cases. The outlook for 2025 anticipates a stabilization and eventual return to Core ARR growth, supported by strategic investments in AI and go-to-market execution, while maintaining profitability. The substantial share repurchase program underscores management's belief in the intrinsic value of the business despite the current stock price. The investment thesis rests on ON24's ability to successfully execute this pivot, translating its technological differentiation and operational discipline into sustainable top-line growth in a competitive and uncertain environment.