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Why SailPoint Technologies Stock Dropped 37.8% in May

By Keith Noonan - Updated Jun 10, 2019 at 6:37AM

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SailPoint's solid first-quarter results were outweighed by big guidance cuts.

What happened

Shares of SailPoint Technologies (SAIL -0.35%) fell 37.8% in May, according to data from S&P Global Market Intelligence. The identity management-focused cybersecurity company saw its stock endure steep sell-offs after first-quarter earnings arrived with disappointing guidance. 

SAIL Chart

SAIL data by YCharts.

SailPoint reported Q1 figures on May 8, delivering sales and earnings results that were in line with the average analyst targets. However, the company guided for a loss of $0.05 in the current quarter while analysts had targeted a $0.02-per-share profit. Management's target for Q2 revenue between $59.7 million and $61.2 million also fell significantly short of the market's expectation for sales of $65.3 million. Making matters worse, it also issued substantial downward revisions for its full-year guidance. 

A fingerprint surrounded by ones and zeroes.

Image source: Getty Images.

So what

SailPoint's Q1 revenue climbed roughly 24% year over year to reach $60.6 million, and the business posted a a roughly $100,000 loss for the period, which worked out to virtually breakeven on a per-share basis. The Q1 results were solid enough and not cause for alarm on their own, but projections for a substantial sales and earnings growth slowdown caught investors off guard. Management attributed the downward revisions to changes in the product pipeline, and it outlined expectations that sales for its licensing segment would decline between 4% and 5% on the year and have negative spillover effects on its subscription business. 

Now what

SailPoint now expects 2019 sales to come in between $277 million to $281.5 million, down from its previous guidance for annual revenue between $293 million to $299 million. Its adjusted operating income target for the year was revised down to the range of $17.1 million to $18.6 million, working out to adjusted earnings per share between $0.14 and $0.16. Management had previously guided for adjusted operating income between $28 million and $31 million, and adjusted earnings per share between $0.25 and $0.29.

While the guidance revision was undeniably disappointing, CFO Cam McMartin urged shareholders to focus on the long-term outlook: 

It's worth noting that while our revised guidance implies a year-over-year decline in our license revenue for 2019, we continue to see year-over-year growth in our long-term pipeline. In addition to what Mark referenced earlier, this near-term decline in license revenue is also magnified by a challenging 2018 license comparable masking underlying growth trends. We are confident that we're on the right track to correct the challenges we noted and believe we need to continue making investments in our refocused go-to-market initiatives and product portfolio to address our large market opportunity and extend our competitive advantage.

The company is valued at roughly 5.5 times its new midpoint sales target and 64.5 times its midpoint earnings guidance. 

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