ON24, Inc. (ONTF)

Executive Summary / Key Takeaways

• AI Transformation as the New Growth Engine: ON24's pivot from virtual events to AI-powered intelligent engagement is gaining real traction, with AI solutions now in 40-50% of new deals and contributing over 20% of growth ARR bookings, suggesting the company is evolving from a pandemic beneficiary into a sustainable, data-driven platform.

• Margin Inflection Validates Strategic Shift: The company has achieved positive free cash flow for two consecutive years ($2.6M in 2024), expanded non-GAAP gross margins to 77%, and improved adjusted EBITDA margins by nearly 200 basis points, proving that shedding low-margin virtual conference business and focusing on core platform with AI upsells creates genuine operating leverage.

• Customer Quality Over Quantity: While total customer count has modestly declined and large customers (> $100K ARR) dipped to 294 from 305 year-end, average core ARR per customer hit an all-time high above $80,000 and multi-year agreements reached record levels, indicating successful upselling and deeper penetration rather than churn.

• Valuation Disconnect Creates Asymmetric Opportunity: Trading at $5.93 with a price-to-sales ratio of 1.77 and price-to-free-cash-flow of 38.01, the market prices ON24 as a declining asset, yet management expects return to profitable ARR growth in 2026, has authorized a $50 million buyback, and is evaluating acquisition interest, signaling potential inflection.

• Critical Execution Risks Remain: The thesis hinges on AI adoption accelerating beyond current ~20% penetration, successful competition against Zoom and Microsoft bundling strategies, and maintaining gross retention improvements while reducing sales and marketing expenses from low-40% to mid-30% of revenue within twelve months.

Setting the Scene: From Webinar Vendor to AI Engagement Platform

ON24, founded in January 1998 as NewsDirect and headquartered in San Francisco, began as a per-event webinar management service before transforming into a software-as-a-service platform in 2013. This early pivot to subscription revenue laid the groundwork for its current business model, but the company's trajectory was forever altered by the pandemic-driven surge in virtual events followed by the brutal correction as in-person activities resumed. The subsiding COVID-19 impact created a revenue headwind that pushed ON24 into consecutive years of top-line decline, forcing management to make hard choices about which business lines could support sustainable, profitable growth.

The company now operates a cloud-based intelligent engagement platform that generates actionable first-party data from digital experiences, targeting primarily enterprise customers in regulated industries. This focus matters because financial services, life sciences, and professional services clients now represent approximately half of ON24's business, up from 33-34% four to five years ago. These sectors exhibit higher gross retention rates near 90% and demonstrate mid-single-digit growth even in challenging macro environments, providing a more defensible foundation than the pandemic's mass-market boom. The strategic de-emphasis of the managed-service Virtual Conference product, which has shrunk to just 2% of revenue and continues declining 12-21% annually, further concentrates resources on higher-margin, self-service offerings where ON24 can build durable competitive advantages.
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Technology, Products, and Strategic Differentiation: The AI Moat

ON24's core technological advantage lies in its ability to capture and operationalize over one billion engagement minutes annually into hyper-personalized, data-rich digital experiences. The platform's portfolio—anchored by ON24 Elite, Engagement Hub, Target, and augmented by newer products like Breakouts, Go Live, and Forums—generates proprietary first-party data that becomes more valuable as AI capabilities expand. This data moat matters because in an era where AI can commoditize content creation, the behavioral insights about how audiences interact with that content become the true differentiator.

The AI-powered Analytics and Content Engine (ACE), launched in January 2024, exemplifies this evolution. ACE automatically transforms long-form webinar content into derivative assets like video clips, blog posts, and social media snippets, addressing the critical enterprise pain point of content repurposing. Within one year, ACE accounted for over 20% of growth ARR bookings, and by Q3 2025, nearly one in five customers were paying for AI solutions. The subsequent launches of ON24 Lumina (design system), ON24 IQ (intelligent agents for event creation and Q&A), ON24 Translate (multilingual engagement across 60+ languages), and ON24 AI Propel (omni-channel campaign transformation) create a comprehensive AI suite that streamlines workflows and expands global reach. This product velocity demonstrates ON24 is not merely adding AI features but rebuilding its platform architecture around AI-native workflows, making the technology harder for competitors to replicate through simple feature parity.

The strategic differentiation extends to how ON24 leverages AI internally. Management targets reducing sales and marketing expenses from the low-40% range to mid-30% of revenue within twelve months and low-30% within two years by deploying AI tools to improve efficiency. This suggests the AI investment can drive not just top-line growth but meaningful margin expansion, a rare combination for a company at this scale. The five core pillars of ON24's AI strategy—focused on positive business outcomes, cost efficiency, and enterprise-grade scalability—directly address the primary objections enterprise buyers raise about AI adoption: ROI, security, and reliability.

Financial Performance & Segment Dynamics: Evidence of Turnaround

ON24's financial results tell a story of deliberate contraction followed by selective expansion. Q3 2025 revenue of $34.6 million declined 4.7% year-over-year, yet beat management's guidance and represented an acceleration from the 6% decline seen in the first nine months. More importantly, the composition of revenue has improved dramatically. Core Platform revenue, which excludes the de-emphasized Virtual Conference product, represents 90% of total revenue and while down 5.7% year-to-date, shows improving trends as AI solutions gain traction. Professional services revenue increased in Q3 2025, driven by stronger demand for production support, indicating customers are investing more deeply in complex, high-value events rather than self-service webinars.

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The margin story provides the strongest evidence for the turnaround thesis. Non-GAAP gross margin improved to 77% in 2024 from 75% in 2023, while adjusted EBITDA margin expanded nearly 200 basis points. Operating leverage came from disciplined cost management—total non-GAAP expenses fell almost $20 million in 2024—combined with revenue mix shift toward higher-margin platform subscriptions. The company generated positive free cash flow of $2.6 million in 2024, a dramatic improvement from negative $14.4 million in 2023, and expects positive free cash flow again in 2025. This proves ON24 can self-fund its AI transformation without diluting shareholders or taking on debt, a critical advantage for a company with a market cap of just $250.88 million.

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Customer metrics reveal a nuanced but encouraging picture. Total customers stood at 1,521 in Q3 2025, with those contributing at least $100,000 in ARR declining to 294 from 305 at year-end 2024. This decline primarily reflects customers reducing spend below the threshold rather than outright churn. The countervailing trend—average core ARR per customer exceeding $80,000, an all-time high—demonstrates successful land-and-expand motion. Additionally, the percentage of customers using two or more products hit an all-time high in Q3 2025, increasing sequentially every quarter, while the percentage of ARR in multi-year agreements also reached record levels. These metrics indicate deepening relationships and longer revenue visibility, reducing the risk of sudden churn that plagues transactional SaaS businesses.

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Annual Recurring Revenue performance shows the final turn. Core Platform ARR ended Q3 2025 at $122.4 million, down from $127.3 million at year-end 2024, but the trajectory is improving. ARR performance in 2024 improved by almost 5 percentage points compared to 2023, and management expects a meaningful improvement in Q4 2025 that will set up stronger 2026 growth. The gross retention rate reaching its highest level in four years provides the foundation for this optimism—when existing customers stay and expand, new customer acquisition becomes growth acceleration rather than replacement.

Outlook, Management Guidance, and Execution Risk

Management's guidance reflects cautious optimism rooted in improving fundamentals. For Q4 2025, ON24 projects revenue of $33.9-34.5 million, core platform revenue of $33.3-33.9 million, and non-GAAP operating loss of just $0.8-0.2 million, with expectations of being adjusted EBITDA positive. Full-year 2025 guidance calls for revenue of $138.6-139.2 million, non-GAAP operating loss of $4.2-3.6 million, and positive free cash flow for the second consecutive year. This shows management expects to maintain profitability while investing in AI, a balancing act many growth companies fail to achieve.

The most significant forward-looking catalyst is the partnership with LinkedIn, announced in November 2025. This integration will enable seamless event promotion on LinkedIn, frictionless registration, and expanded audience reach, with monetizable elements like lookalike audiences expected by Q1 2026. This addresses ON24's primary growth constraint—new customer acquisition—by tapping into LinkedIn's professional network of over 1 billion users. If execution succeeds, this could drive a step-change in new logo growth, particularly in the enterprise segment where ON24's average contract values exceed $80,000.

Management's cost reduction targets are ambitious but achievable. Reducing sales and marketing from low-40% to mid-30% of revenue within twelve months requires AI-driven productivity gains and disciplined headcount management. The company has already demonstrated this capability, cutting sales and marketing expense to $14.4 million in Q3 2025 (42% of revenue) from $15.9 million (44% of revenue) in Q3 2024. Continued progress here would flow directly to operating leverage, potentially expanding EBITDA margins by 500-700 basis points over two years.

The evaluation of potential acquisition interest adds another dimension. While details remain confidential, the board's formal consideration suggests external parties see value that the public market at $5.93 per share does not. This creates a potential floor on valuation and validates management's assertion that the stock is undervalued. The $50 million share repurchase program authorized in May 2025, with $38.6 million remaining as of September 30, 2025, reinforces this conviction.

Risks and Asymmetries: What Could Break the Thesis

The primary risk is competitive pressure from platform giants. Zoom , Microsoft (MSFT), and Cisco (CSCO) can bundle webinar functionality with broader collaboration suites at little marginal cost, potentially commoditizing ON24's core offering. While ON24's first-party data and AI analytics provide differentiation, many customers may accept "good enough" analytics if bundled pricing is compelling. This risk is amplified by ON24's smaller scale—$148 million in annual revenue versus Zoom's $4.7 billion and Microsoft's hundreds of billions—limiting R&D investment and sales reach. The "so what" is that ON24 must maintain a technology edge wide enough to justify premium pricing; any narrowing could accelerate customer defections.

AI execution risk remains material. While ACE adoption is promising, only ~20% of customers currently pay for AI solutions. The roadmap includes ambitious features like agentic video translation maintaining speaker voice and synchronized lip movements, and genetic AI clip optimization. If these capabilities fail to deliver promised ROI or if development timelines slip, the expected acceleration in ARR growth may not materialize. This matters because the entire 2026 growth thesis rests on AI becoming the primary expansion driver.

Customer concentration in regulated industries, while currently a strength, creates vulnerability. Financial services and professional services represent approximately 20% of the business each, and life sciences remains a key vertical despite macro pressure. A sector-specific downturn—such as biotech funding freezes impacting life sciences marketing budgets—could disproportionately harm ON24. The decline in $100K+ customers from 305 to 294 suggests some large customers are downsizing, and if this trend accelerates, it could offset gains from ARR per customer growth.

The securities class action lawsuit, dismissed in March 2024 but under appeal, represents an overhang. While management considers the appeal without merit, ongoing litigation creates uncertainty and legal expenses that could impact G&A costs, which have already been reduced through streamlining. Any adverse ruling, however unlikely, could damage reputation and create financial liability.

Finally, the macroeconomic environment continues to pressure marketing technology budgets. While management sees "green shoots" in technology vertical spending, the guidance explicitly assumes no major macroeconomic improvement. If enterprises further reduce martech stacks, ON24 could face headwinds in new customer acquisition that even LinkedIn partnership and AI innovation cannot overcome.

Valuation Context: Pricing in Decline Amid Inflection

At $5.93 per share, ON24 trades at a market capitalization of $250.88 million and an enterprise value of $77.08 million, reflecting net cash of approximately $174 million. The price-to-sales ratio of 1.77 sits well below typical SaaS multiples of 3-6x for growing companies, while the price-to-free-cash-flow ratio of 38.01 appears reasonable for a business at profitability inflection. These multiples matter because they price ON24 as a low-growth, declining asset rather than a company poised to return to ARR growth in 2026.

Comparing to direct competitors reveals the disconnect. Zoom (ZM) trades at 5.57x sales with 4.4% growth and 33% profit margins, while RingCentral (RNG) trades at 1.08x sales with 5% growth and near-breakeven profitability. ON24's 1.77x sales multiple aligns with slower-growth peers despite having a clearer path to margin expansion through AI-driven efficiency. The enterprise value-to-revenue ratio of 0.55 is particularly striking—net cash represents 70% of market cap, suggesting the market assigns minimal value to the operating business.

Balance sheet strength provides downside protection and strategic optionality. With $175.2 million in cash, cash equivalents, and marketable securities as of September 30, 2025, and no debt, ON24 can fund its AI roadmap, weather macro downturns, and pursue acquisitions or further buybacks. The company expects existing liquidity to meet needs for at least twelve months, and the undrawn $25 million revolving credit facility (secured by substantially all assets) offers additional flexibility. This matters because it removes financing risk and enables management to focus on execution rather than fundraising.

The valuation gap between public markets and strategic buyers is evident. Management's statement that "our current market valuation does not reflect our long-term growth potential" and the board's evaluation of acquisition interest suggest a private market valuation could exceed the public price. The $50 million buyback program, with $15.9 million executed in the first nine months of 2025, represents 6% of shares outstanding at current prices, providing tangible support and signaling management's conviction.

Conclusion: The AI Inflection Point

ON24 stands at a critical juncture where years of strategic repositioning are beginning to manifest in measurable financial improvement. The company's evolution from pandemic-driven virtual events to an AI-powered intelligent engagement platform has created a more defensible, higher-margin business with deeper customer relationships and clearer competitive differentiation. While top-line growth remains negative, the underlying metrics—gross retention at four-year highs, ARR per customer at record levels, AI solutions in nearly half of new deals, and positive free cash flow—signal a business approaching inflection.

The investment thesis hinges on whether ON24 can accelerate AI adoption from ~20% of customers to a majority while simultaneously reducing sales and marketing expenses from the low-40% range to mid-30% of revenue. Success would drive operating leverage, return the company to profitable ARR growth in 2026, and likely command a valuation re-rating from current depressed levels. Failure to execute on either dimension—whether from competitive pressure, AI development setbacks, or macro headwinds—could trap the company in low-growth purgatory despite its technological advances.

For investors, the asymmetric risk-reward at $5.93 per share is compelling. Downside is cushioned by $175 million in net cash and a business generating positive free cash flow. Upside could be driven by AI revenue acceleration, LinkedIn partnership monetization, or strategic acquisition at a premium. The critical variables to monitor are Q4 2025 ARR performance, AI customer adoption rates, and progress on cost reduction targets. If management delivers on its 2026 growth target, today's valuation will likely appear as a temporary disconnect rather than a permanent impairment.