Image source: DexCom.

What happened

Shares of DexCom (DXCM 2.89%), a medical-device company focused on diabetes, dropped by 18% as of 12:45 p.m. EDT on Wednesday, after the company reported its third-quarter results.

So what

Dexcom reported $148.6 million in revenue for the third quarter, which was up 41% over the year-ago period and was $2 million more than analysts were expecting. However, the company struggled to translate the top-line beat into success on the bottom line. Dexcom reported a quarterly net loss of $18.8 million, or $0.22 per share, which was quite a bit worse than the $0.14 loss that the pros were expecting.

On its conference call with investors, management stated that its net loss exceeded its internal expectations primarily due to the build-out of its customer service infrastructure. In addition, management said that it increased its marketing spending and added to its executive head count in the third quarter, both of which drove up costs.

Looking ahead, management stated that it expects to hit the "mid to upper end" of its guidance revenue range for the full year, which is $550 million to $575 million. However, the company stated that it does not expect to exceed the top end of the range. With Wall Street currently projecting full-year revenue of $576 million, this is a disappointing forecast.

It's also worth remembering that Dexcom had a long history of exceeding Wall Street's targets, which earned the company a premium valuation. Given the higher-than-expected quarterly loss and lower-than-hoped-for guidance, it is no wonder shares are tumbling today.

Now what

Looking beyond the numbers, it's likely that the markets are feeling jittery about Dexcom's prospects given that Medtronic (MDT -1.12%), its primary competitor, recently got FDA approval for the first "artificial pancreas." Kevin Sayer, Dexcom's CEO, addressed these concerns right up front during the company's conference call, noting:

Approximately one month ago Medtronic announced it had received FDA approval of the 670G hybrid closed-loop system. Since that time there has been significant press surrounding this product, which has created considerable confusion in the marketplace. For example, we recently attended a diabetes charity event where it was declared from the podium [that] type 1 diabetes has now been cured because of the FDA-approved artificial pancreas. Clearly this is not the case. Patients and caregivers are showing signs of skepticism and frustration due to the over-hype of the promise of this technology.

Medtronic expects to officially launch the 670G for sale early next year, so it will still be some time before investors learn whether this product dampens Dexcom's growth prospects. While I personally believe that the company will be able to grow at above-average rates for the foreseeable future, I continue to think that the smart move is to remain cautious.