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Why Ooma Stock Just Popped 14%

By Rich Smith - Nov 22, 2019 at 11:04AM

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Ooma earned a profit. Sort of.

What happened

Shares of Ooma ( OOMA -1.62% ), the voice-over-the-internet phone service provider, are racing out of the gate this morning after the company reported a surprise "profit" in last night's fiscal Q3 2020 earnings report.  

Heading into earnings, analysts had forecast that Ooma would lose $0.05 per share pro forma on sales of $38.4 million. Ooma eked out a win on the sales front, reporting $39.6 million. Even better, the company said it earned a $0.01 per share non-GAAP (adjusted) profit in Q3.  

Ooma stock is up 13.7% as of 10:25 a.m. EST.

Smiling man at laptop talking on phone

Image source: Getty Images.

So what

Total revenue surged 21% year over year, led by business service revenue growth of 67%. That's the good news.

The bad news is that while Ooma says it earned a "profit" and improved over last year's pro forma loss, the company's GAAP financials show that when calculated according to generally accepted accounting principles, net income for the quarter was actually a loss of $0.32 per share -- nearly twice as bad as the $0.18 per share that Ooma lost in last year's Q3.

Now what

Investors don't seem to care much about GAAP today, however, and the reason is guidance.

Looking ahead, Ooma noted that Q4 2020 revenues should be in the neighborhood of $40 million -- $1 million more than Wall Street was expecting. The company is also predicting a repeat of its non-GAAP-profitable third quarter, saying pro forma profits could range from breakeven to $0.02 per share in this new quarter, much better than the $0.07-per-share loss that Wall Street was looking for.

No wonder Ooma investors are so enthusiastic today.

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.

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