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 ReachLocal (RLOC) were moving the wrong way today, falling as much as 19% after providing disappointing guidance in its quarterly report.
So what: The online-marketing specialist said revenue grew 17% to $121.8 million, slightly below expectations, while adjusted EPS topped estimates by $0.11, coming in at $0.10. Without adjustments, however, the company lost $0.02 a share. ReachLocal maintained its full-year guidance, matching estimates, but lowered its guidance for the current quarter due to "macroeconomic challenges" and a change the timing of "Underclassmen" hiring, a term the company uses to connote new ad accounts. ReachLocal now expects revenue of $124 million to $126 million against estimates of $131.3 million.
Now what: There were some positives in the report in addition to the earnings beat, as ReachLocal showed strong revenue growth, with a jump of 32%, and entered the Russian and Austrian markets. Also, considering management didn't cut full-year guidance, the company seems to be indicating that it will make up for the shortfall in the second half of the year. ReachLocal is one of several cloud-computing-based companies that carries high expectations and a high price tag because of it. With slim profits and only moderate revenue growth, I'd wait for better signs before getting invested.
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