Shares of Blackbaud (NASDAQ: BLKB), a maker of fundraising software used by non-profits, declined 13% as of 10:33 a.m. EDT on Tuesday.
Management told Wall Street on Monday evening that the following factors are going to cause it to miss its previously communicated guidance:
- The continued transition to a software-as-a-service business model, which is putting downward pressure on revenue.
- Reduced transaction revenue due to a behavior shift in its United Kingdom business.
- A reduction in subscription-based recurring revenue.
Image source: Getty Images.
Here's a look at the updated guidance that is being shared with investors for full-year 2018 in response to these changes:
|Metric||Updated Guidance||Previous Guidance|
|Revenue||$844 million to $854 million||$870 million to $890 million|
|Operating margin||19.3% to 19.6%||20.6% to 21%|
|EPS||$2.46 to $2.52||$2.75 to $2.88|
|Free cash flow||$143 million to $147 million||$165 million to $175 million|
All numbers are non-GAAP. Data source: Blackbaud.
With every metric heading in the wrong direction, it isn't hard to figure out why shares are being slammed today.
There's a strong argument to be made that the faster-than-expected transition to a software-as-a-service business model is a good thing for the business. This might depress sales and profits in the near term, but it should also make the business much more reliable in the long term.
However, the news of a behavior shift in the U.K. and a reduction in subscription-based recurring revenue are far more troubling developments. Those factors suggest that the company's core business isn't as strong as Wall Street believed it to be.
Personally, I think Blackbaud is a fine company, but there are better software-as-a-service businesses out there. For that reason, I do not consider today's drop to be a buying opportunity.
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