Golf entertainment and gear company Topgolf Callaway (NYSE:MODG) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 3% year on year to $924.4 million. On the other hand, next quarter’s revenue guidance of $1.06 billion was less impressive, coming in 9% below analysts’ estimates. Its non-GAAP loss of $0.33 per share was 21% above analysts’ consensus estimates.

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• Revenue: $924.4 million vs analyst estimates of $884.3 million (3% year-on-year growth, 4.5% beat)

• Adjusted EPS: -$0.33 vs analyst estimates of -$0.42 (21% beat)

• Adjusted EBITDA: $101.4 million vs analyst estimates of $78.87 million (11% margin, 28.6% beat)

• Management’s revenue guidance for the upcoming financial year 2025 is $4.09 billion at the midpoint, missing analyst estimates by 5.7% and implying -3.5% growth (vs -0.9% in FY2024)

• EBITDA guidance for the upcoming financial year 2025 is $460 million at the midpoint, below analyst estimates of $570.6 million

• Operating Margin: -158%, down from -3.6% in the same quarter last year

• Free Cash Flow was -$25 million, down from $43.7 million in the same quarter last year

• Market Capitalization: $1.29 billion

“We are pleased with our strong finish to the year with fourth quarter revenue, adjusted EBITDA and adjusted free cash flow exceeding expectations,” commented Chip Brewer, President and CEO.

Formed between the merger of Callaway and Topgolf, Topgolf Callaway (NYSE:MODG) sells golf equipment and operates technology-driven golf entertainment venues.

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from “things” to “experiences”. Leisure facilities seek to benefit but must innovate to do so because of the industry’s high competition and capital intensity.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Topgolf Callaway grew its sales at a solid 20% compounded annual growth rate. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Topgolf Callaway’s recent history shows its demand slowed as its annualized revenue growth of 3% over the last two years is below its five-year trend. Note that COVID hurt Topgolf Callaway’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

Story Continues

This quarter, Topgolf Callaway reported modest year-on-year revenue growth of 3% but beat Wall Street’s estimates by 4.5%. Company management is currently guiding for a 7.1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months, similar to its two-year rate. This projection doesn’t excite us and implies its newer products and services will not lead to better top-line performance yet.

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If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Topgolf Callaway broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Topgolf Callaway burned through $25 million of cash in Q4, equivalent to a negative 2.7% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

We were impressed by how significantly Topgolf Callaway blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 3.8% to $6.95 immediately following the results.

Should you buy the stock or not? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.