Ooma's Q1 2026 Results: Sustainable Growth or Overvalued Hype?

Ooma, Inc. (OOMA) delivered its Q1 2026 financial results on May 28, 2025, marking a critical inflection point for investors seeking clarity on the company's ability to sustain growth amid shifting market dynamics. While the quarter showed resilience in its core SaaS model, the absence of key customer retention metrics and lingering margin pressures raise questions about whether Ooma's valuation—now at a 30% premium to its five-year average—reflects reality or overambition. Here's why investors must proceed with caution, yet remain open to strategic entry points.

Revenue Diversification: A Narrowing Focus?

Ooma's Q1 revenue rose 4% year-over-year to $65 million, driven by its subscription and services segment, which now accounts for 93% of total revenue. This underscores Ooma's reliance on its cloud-based business solutions, such as Ooma Office and AirDial, which together serve over 1.2 million users. However, this concentration also highlights a risk: 85% of revenue comes from small and medium-sized businesses (SMBs), a segment facing macroeconomic headwinds like inflation and labor shortages.

While Ooma's expansion into Canada with AirDial and its MultiPath technology (winner of 2024 awards) adds geographic diversification, the company's revenue growth remains tied to SMB adoption. Investors should scrutinize whether this customer base can sustain growth if economic conditions worsen.

Margin Trends: Progress, but Fragile

The Q1 report's star performance was its margin expansion:
- Non-GAAP net income surged 55% to $5.6 million, or $0.20 per share, outpacing analyst estimates of $0.18.
- Adjusted EBITDA grew 34% to $6.7 million.
- Subscription gross margins held steady above 70%, a testament to the scalability of its SaaS model.

Yet, the product and other revenue segment (which includes hardware sales) remains a drag, with margins still in negative territory. Ooma attributes this to pandemic-era supply chain costs, but investors must ensure this isn't masking deeper structural issues. A $2–3 million annualized drag on profitability from this segment could limit upside if not resolved.

Customer Retention: The Missing Puzzle Piece

The most glaring omission in Ooma's Q1 report is customer retention data. The company touts a recurring revenue base of over 90%, but without metrics like churn rate or net dollar retention, investors are left guessing.

Historically, Ooma's net dollar retention rate has been 99% (using a revised methodology since Q1 2024), but this figure is over a year old. In Q1 2024, residential churn spiked due to a one-time issue affecting 4,000 Telo users—a problem that could resurface. Meanwhile, the ARPU of $14.28 (up 4% year-over-year) suggests premium tier adoption (Office Pro/Pro Plus) is healthy, but without retention data, it's impossible to assess if this growth is offset by attrition in lower-tier plans.

Risk Alert: If churn rates rise modestly (say, to 5% from an assumed 3%), Ooma's revenue growth could flatten, especially in its SMB-heavy base.

Valuation: Overpriced for a Niche Player?

Ooma's current valuation—$1.2 billion—translates to a P/S ratio of 4.4x, above its five-year average of 3.2x and higher than peers like RingCentral (3.0x) and 8x8 (2.8x). This premium assumes flawless execution in areas like:
1. International expansion: AirDial's Canadian rollout must gain traction.
2. Margin stabilization: Product gross margins must rebound to pre-pandemic levels.
3. Retention excellence: The unspoken assumption here is that customer loyalty remains unshaken.

Investors Beware: If Q2 results reveal softening retention or margin slippage, Ooma's stock could correct sharply.

Actionable Insights for Investors

• Buy Signal: Consider a 5% position if Q2 revenue hits the high end of guidance ($66.1 million) and Ooma discloses retention metrics at or above historical norms. A P/S dip to 3.8x would also create a safer entry.
• Hold for Now: Wait until the Q2 report and any post-earnings commentary on retention. Avoid overcommitting given the valuation risks.
• Sell Signal: Exit if Q2 results show churn exceeding 5%, product margins worsening, or a downgrade to full-year guidance.

Conclusion

Ooma's Q1 results are a mixed bag: strong in recurring revenue and profitability but dangerously opaque on retention. The company's valuation hinges on its ability to retain SMBs in a volatile economy and resolve supply chain drags. For investors, the path forward requires patience—monitor Q2 metrics closely, and only commit capital if Ooma proves its growth is both durable and defensible.

Final Take: Ooma is a buy at 3.8x P/S with visible retention data, but today's premium demands perfection—a risky bet in a choppy market.

This analysis is for informational purposes only and not financial advice. Always consult a licensed professional before making investment decisions.