8x8 (EGHT) Stock Trades Down, Here Is Why
What Happened:
Shares of business communications software company 8x8 (NYSE:EGHT) fell 14% in the morning session after the company reported third-quarter results, which missed analysts' expectations for key topline metrics, including revenue, ARR (annual recurring revenue) and billings. Free cash flow also declined significantly. Notably, ARR grew only 1% year on year and flat sequentially. The company observed churn mostly within smaller customers. Management added during the earnings call, "...we have been devoting additional resources to retention of the Fuze enterprise customers and expect to see an acceleration in upgrades to 8x8, but we probably have at least one more quarter before this headwind to ARR growth begins to dissipate."
Looking ahead, it is not surprising that revenue guidance for the next quarter and the full year both missed Wall Street's estimates. A bright spot was a beat on profit that led to a non-GAAP EPS beat. However, underperformance on revenue guidance is driving the stock performance. Overall, it was a weak quarter for the company.
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What is the market telling us:
8x8's shares are very volatile and over the last year have had 54 moves greater than 5%. But moves this big are very rare even for 8x8 and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock dropped 7.1% on the news that the company reported fourth-quarter sales that missed analysts' estimates, with revenue growth remaining weak. On a brighter note, earnings per share beat by an impressive 23%. Gross margin also rose, surpassing estimates. However, revenue guidance for the next quarter and full year missed Consensus. However, guidance for operating income beat, and the full year operating income guidance was raised. Management highlighted the focus on driving business efficiency, adding that "we continued to invest in innovation while reducing our service delivery costs and increasing operational efficiency across the organization." While the improvements in profitability margins and an increase in full-year operating income guidance may appeal to investors, the weak revenue growth is likely to have subdued the overall market sentiment.
8x8 is down 21% since the beginning of the year, and at $2.90 per share it is trading 54.8% below its 52-week high of $6.42 from February 2023. Investors who bought $1,000 worth of 8x8's shares 5 years ago would now be looking at an investment worth $162.19.
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