Please ensure Javascript is enabled for purposes of website accessibility

Why Zayo Group Holdings, Inc. Stock Plunged Today

By Steve Symington – Nov 8, 2018 at 4:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The communications infrastructure leader punctuated a rough quarter with plans for a taxable spinoff.

What happened

Shares of Zayo Group Holdings, Inc. (ZAYO) fell 25.6% on Thursday after the bandwidth infrastructure services company announced disappointing third-quarter 2018 results and plans to split itself into two companies.

More specifically on the former, Zayo Group's quarterly revenue declined 0.3% year over year to $641.1 million. That translated to a 5% decline in net income to $22.1 million, which was flat on a per-share basis at $0.09. Most investors were anticipating a slight increase in revenue to generate higher earnings of $0.12 per share.

Stock market numbers and charts on a red and green LED display

IMAGE SOURCE: GETTY IMAGES.

So what

During the subsequent conference call, CEO Daniel Caruso admitted Zayo's bookings (down $0.3 million from last year, to $7.3 million) and installs (up $0.3 million, to $7.6 million) were lower than expected. 

But the big news was that, in conjunction with today's report, Zayo also unveiled plans to separate into two publicly traded companies -- one for the infrastructure side and one to handle the enterprise services business.

Caruso, for his part, called it the "logical next step in the evolution of Zayo," explaining that the move should significantly reduce complexity, sharpen each company's focus on its respective area of expertise, more effectively foster innovation, and improve management control and accountability.

Now what

Zayo doesn't provide specific forward financial guidance. But assuming all goes as planned -- which means passing regulatory muster and board approval -- it expects the separation to be completed as a taxable spinoff of the enterprise company from Zayo in late 2019. 

Of course, it seems the market is skeptical about whether the separation will cure Zayo's ills and help the two businesses once again find sustained, profitable growth. But after coupling the news with today's underwhelming report, it's no surprise to see Zayo stock pulling back in response.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Zayo Group. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Zayo Group Holdings, Inc. Stock Quote
Zayo Group Holdings, Inc.
ZAYO

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.