Shares of Acacia Communications (NASDAQ:ACIA) slumped on Thursday following a disappointing report from one of its largest customers, ZTE Corp. (NASDAQOTH:ZTCOY). At 12 p.m. EDT, the stock was down about 12%.
According to Acacia's most recent quarterly SEC filing, ZTE accounted for 37.9% of the company's total revenue during the first six months of 2016. Acacia's five largest customers accounted for nearly 80% of total revenue during that period, suggesting substantial concentration risk for the company.
ZTE reported third-quarter operating revenue of 23.8 billion yuan, up 5.23% year over year but well below the average analyst estimate of 26.3 billion yuan. With ZTE accounting for such a significant portion of Acacia's revenue, it's not surprising that the stock took such a large hit on the news.
Since going public earlier this year, shares of Acacia have been volatile. The stock initially surged in its first few months as a public company, but some of those gains have now been lost.
Acacia trades for about eight times trailing-12-month sales, a valuation that bakes in substantial growth expectations. With Acacia highly dependent on a small number of customers, further shocks in the future are certainly possible.
Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.