What happened

Shares of Avalara Inc. (NYSE:AVLR) sank on Friday after the tax compliance automation provider reported its second-quarter results. While Avalara beat analyst estimates for both revenue and earnings, it wasn't enough to keep the pricey stock afloat. Avalara shares were down 8.1% as of 11:30 a.m. EDT, after being down as much as 16.9% earlier in the day.

So what

Avalara reported second-quarter revenue of $63.7 million, up 25% year over year and $2.9 million higher than the average analyst estimate. Subscription and returns revenue totaled $59.7 million, up 24%, while professional services revenue grew 56% to $4.0 million. The company now has 8,080 core customers, gaining about 320 net new customers during the quarter.

The Avalara logo.

Image source: Avalara.

Non-GAAP earnings per share came in at a loss of $0.19, up from a loss of $0.20 in the prior-year period and $0.04 better than analysts were expecting. On a GAAP basis, the company's net loss widened thanks to higher operating costs.

"Companies of all sizes are increasingly looking for modern, cloud-based transaction tax compliance automation solutions as they digitize their businesses and embrace powerful industry trends such as e-commerce and globalization," said CEO Scott McFarlane. "We believe Avalara is a clear choice based on our industry-leading platform and content, pre-built integrations, and partner channel."

Now what

Avalara expects third-quarter revenue between $66.0 million and $66.5 million, with full-year revenue between $260 million and $261 million. Non-GAAP operating loss is expected between $10 million and $11 million in the third quarter, and between $41.5 million and $43.5 million for the full year.

This was Avalara's first quarterly report as a public company. While it beat expectations, it wasn't enough to prevent the stock from slumping. With a market capitalization prior to Friday's plunge equivalent to 11.5 times full-year revenue guidance, the market may have been expecting more.

Timothy Green 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.