Why Model N Shares Plummeted

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 Model N (NYSE: MODN  ) plunged more than 37% during Tuesday's intraday trading, after the company issued weaker-than-expected preliminary revenue guidance for the first quarter and full year fiscal 2014.

So what: For the fiscal first quarter ending Dec. 31, the company now expects total revenue of $20 million to $21 million. For the year ending Sept. 30, 2014, Model N says revenue should be in the range of $70 million to $80 million. Analysts, on average, were expecting significantly higher first-quarter sales of $26.35 million, with full-year fiscal 2014 revenue of $117.99 million.

Now what: This news, which led to downgrades from at least three analyst forms, including Pacific Crest, Stifel, and JPMorgan Chase, was particularly troubling for a revenue management company that just went public six months ago and whose slogan is "More revenue. Made Simple."

Model N's founding CEO, Zack Rinat, weighed in, saying while the company believes it's still positioned well for the long term, its "current revenue visibility has caused us to reduce our financial expectations for fiscal 2014." He added: "We remain focused on recruiting a new sales leader to resolve the sales execution challenges we discussed on last quarter's earnings conference call."

As a result, I can't blame investors for jumping ship until Model N can prove it has what it takes to achieve sustainable profits over the long run.

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