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Why Shares of Cree, Inc. Plunged 16% Today

By Travis Hoium - Updated Apr 26, 2017 at 11:22AM

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A weak earnings report couldn't offset the potential growth from a new joint venture on Wednesday.

What happened 

Shares of LED lighting company Cree, Inc. (WOLF -1.15%) fell as much as 16.1% on Wednesday after reporting fiscal third-quarter earnings. As of 11:25 p.m. EDT, shares were still down 12.8% on the day. 

So what

Revenue for the quarter was down 7% to $342 million, and net loss was $99 million, or $1.02 per share. Even on a non-GAAP basis, net income was just $749,000, or $0.01 per share -- below the $0.04 in earnings analysts expected. 

LED light sitting next to a leaf on a wood table.

Image source: Getty Images.

Cree also announced a joint venture with San'an Optoelectronics to produce "high-performing, mid-power lighting class LED packaged products" for sales around the world. The idea is to leverage Cree's technology and San'an's manufacturing expertise to expand into the larger mid-power market rather than Cree's traditional high-power market. 

Now what

Earnings clearly weren't what investors were hoping and were even on the low end of the guidance given late in March. The new joint venture is also a huge unknown, and we won't even see initial sales until the third calendar quarter of this year. At that point, Cree can expect to see royalties from the venture's use of its patents, but management didn't give an indication as to how meaningful those royalties would be. 

Long term, Cree is still struggling to make money despite rising adoption of LED lights. And until it turns the corner and begins to grow consistently and report net income, I won't be jumping into this stock. 

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