Why BroadSoft Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Internet communications company BroadSoft (NASDAQ: BSFT  ) sank a whopping 28% today after the company issued guidance that disappointed Wall Street.

So what: BroadSoft's fourth-quarter results -- adjusted EPS of $0.47 on revenue growth of 13% -- managed to top estimates, but downside guidance for the current quarter and full year is triggering plenty of concerns over slowing growth going forward. Management said that consumer applications revenue will be down prior to service providers upgrading completely to LTE networks, while professional services revenue will decline due to revenue recognition timing issues, forcing analysts to drastically recalibrate their valuation estimates.

Now what: Management now sees full-year EPS of $1.20-$1.35 on revenue of $181 million-$189 million, well below its prior view of $1.72 and $196.9 million. "In 2013, we will continue to focus on developing innovative mobile services to address the growing multi-device communication trend and provide users the freedom to communicate from anywhere," CEO Michael Tessler reassured investors. "[W]e remain excited by the opportunities to further drive adoption of BroadSoft-enabled solutions." When you couple the uncertainty surrounding BroadSoft's growth trajectory with its still-lofty price ratios, however, I'd wait for an even more of a pullback before buying into that bull talk.

Interested in more info BroadSoft? Add it to your watchlist.

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