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Why Mindbody Inc. Stock Surged Today

By Bradley Seth McNew – Oct 27, 2016 at 8:26AM

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The double-digit gain today is on top of an already successful last year -- and it looks like this could be just the start.

Image source: Mindbody Inc.

What happened

Shares of Mindbody Inc. (MB), were up 16% as of 11:30 a.m. EDT Thursday after the cloud-based health and wellness services company reported Q3 earnings that showed a surge in users and sales. The stock is up 36% year to date.

So what

During the third quarter, Mindbody revenue rose 35% year over year, thanks to a 20% growth in new subscribers to over 58,000, as well as focusing on higher transaction volume and cost. The bulk of the company's sales is made up of subscription revenue and payments revenue, which rose 33% and 41%, respectively.

The company still reported a loss of over $5 million, or $0.15 per share, compared to a loss of $0.25 per share in Q3 2015. Management said this loss was because of the company's aggressive investment in future growth. However, CEO Rick Stollmeyer did say during the earnings call, "With profitability just around the corner, we can now move up the date, once again. Mindbody will be adjusted-EBITDA profitable in the first quarter of 2017 while continuing to invest in growth and innovation for the future."

Image source: Mindbody Inc.

Now what

Mindbody's business is made up of software that users and businesses subscribe to for a fee, as well as a free mobile app that allow users to book classes at nearby gyms or studios either as a drop in session, or by purchasing a pack without going through a monthly gym subscription. Mindbody surpassed 4 million registered users on its health and wellness app, nearly double over the last year.

Other interesting recent developments include Mindbody and Under Armour's (UAA -0.78%) (UA -1.25%) recently announced partnership that puts the Mindbody fitness class booking feature inside of Under Armour's MyFitnessPal app, bringing the feature to over 60 million users in the U.S. The financial details of how bookings within the Under Armour app create sales for either company are unknown, but the deal is likely to benefit Mindbody. Mindbody also recently added the former CFO of the San Francisco 49ers football team and a former VP at Facebook to its board of directors.

Mindbody is a small company -- its market cap of $800 million is about 1/15 of its new partner Under Armour's. However, its expansion has already been impressive, and new deals like this could help its sales continue to grow quickly. Thursday's share price surge seems pretty straight forward in that the market is catching on to what this small growth stock could do in the coming years.

Seth McNew owns shares of Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool owns shares of and recommends Facebook, Under Armour (A Shares), and Under Armour (C Shares). 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.

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