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Why 8x8, Inc. Stock Plunged 22% Today

By Anders Bylund – May 25, 2018 at 12:20PM

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A mixed earnings report wasn't enough to support the cloud communications expert's surging share prices -- so here's a quick market correction.

What happened

Shares of cloud-based communications specialist 8x8 (EGHT -0.86%) crashed as much as 22.2% on Friday morning on the heels of a disappointing earnings report. At noon EDT, the stock had recovered to a 16% daily decline.

So what

In the fourth quarter of fiscal year 2018, 8x8 saw total sales rising 19% to $79.3 million. Adjusted net losses stopped at $0.03 per diluted share, down from $0.05 of positive earnings per share in the year-ago period. Analysts' consensus estimates had called for breakeven earnings on roughly $77 million in top-line revenue, so this was a mixed performance. Looking ahead, management issued full-year revenue guidance for the next fiscal year just above the current Street view.

8x8 logo with the tagline, Global Cloud Communications.

Image source: 8x8, Inc.

Now what

Analyst firm BofA/Merrill lowered 8x8 from a buy to a hold in the wake of this report while Baird kept its outperform rating on the stock and called this plunge a buying opportunity. Both analyst firms raised their price targets on the stock, landing at $22 per share for the bearish firm and $24 per share for the more bullish Baird analyst.

This was actually a solid report and 8x8 is going strong. CEO Vik Verma called this a "transformational year." The company's client list is starting to skew toward larger companies now, driving gross margins higher and customer churn lower. The earnings miss resulted from a 38% year-over-year increase in sales and marketing expenses that should help keep the top-line growth going for the long haul.

But the stock entered this earnings report on a full head of steam, having gained 57% in 2018 and 68% over the previous 52 weeks. Call this a correction and feel free to take Baird's advice about a buy-in opportunity here.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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