What happened

Shares of Sierra Wireless Inc. (NASDAQ:SWIR) were down 25.1% as of 3:15 p.m. EST Friday after the Internet of Things (IoT) leader announced underwhelming fourth-quarter 2018 results and disappointing forward guidance.

More specifically on the former, Sierra Wireless' quarterly revenue climbed 9.7% year over year, to $201.4 million, translating to adjusted net income of $9 million, or $0.25 per share (down from $0.28 per share in the same year-ago period). Both the top and bottom lines were near the low ends of Sierra Wireless' guidance, which called for revenue of $200 million to $208 million and earnings per share (EPS) of $0.22 to $0.30. 

View of Earth at night from space, with glowing dots and connected lines showing networks.


So what

Within Sierra Wireless' top line, sales from its core OEM solutions business climbed 6.4%, to $148.7 million, while IoT services revenue skyrocketed 89.1%, to $22.4 million (albeit helped largely by the company's acquisition of Numerix in late 2017). Enterprise solutions revenue declined 5.1%, to $30.3 million.

All in all, the fourth quarter wasn't that bad. But looking ahead to the first quarter of 2019, Sierra Wireless told investors to expect revenue of $170 million to $174 million, down from $186.9 million a year earlier, with adjusted earnings per share of $0.02 to $0.06. By contrast -- and while we typically don't lend much credence to Wall Street's expectations -- most analysts were anticipating first-quarter earnings of $0.21 per share on revenue of $198.2 million. To blame, the company says, is a combination of macro-economic headwinds and weakness in the automotive, enterprise networking, and mobile-computing markets.

Check out the latest Sierra Wireless earnings call transcript.

Now what

To address that weakness, Sierra Wireless is undertaking a cost-savings program over the next 18 to 24 months, while at the same time investing in new products to enable technologies like LPWA, 5G, embedded SIM, and edge networking for driving longer-term growth. 

Still, the company expects full-year 2019 earnings of just $0.30 per share on roughly flat revenue -- far below the earnings of $1.20 per share and 7% top-line growth most analysts had predicted.

Put simply, this was a sub-par quarter followed by soft guidance. And though Sierra Wireless remains well-positioned as a central enabler of the Internet of Things, I think the stock will remain under pressure until it shows tangible signs of sustained growth and profitability.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.