What happened

Shares of expense-management software company Expensify (EXFY -6.91%) plunged on Friday after the company reported financial results for the third quarter of 2022. As of 1:30 p.m. EST, Expensify stock was down 11%, having steadily clawed its way back from a 34% drop early in the session. 

So what

In Q3, Expensify generated revenue of $42.5 million, which was up 13% year over year. This missed analysts' expectations and was a decline from the $43.2 million it generated last quarter. Moreover, it was far below management's long-term revenue guidance of 25% to 35% annual growth. This is why Expensify stock dropped so sharply this morning and even briefly hit an all-time low.

Piper Sandler analyst Brent Bracelin was quick to downgrade Expensify stock this morning in light of Q3 results. According to The Fly, Bracelin lowered his price target by 33% to just $12 per share as he fails to see a near-term catalyst for Expensify's revenue growth.

Now what

There are positive takeaways for shareholders from Expensify's Q3 results. First, the company added roughly 7,000 new paying members during the quarter, reaching 761,000. Moreover, it has over 15,000 people using free accounts, which could quickly upgrade to a paid tier in future quarters. Finally, it generated $26 million in positive operating cash flow year to date, with just stock-based compensation responsible for its manageable $23.6 million year-to-date net loss.

In other words, Expensify isn't burning through cash while business is slow. And it has over $100 million in cash on the balance sheet, meaning it's significantly well capitalized for a small-cap stock. Assuming it can keep growing customer accounts during this downturn, perhaps Expensify will return to a higher growth rate once macroeconomic conditions improve.