What happened

Shares of educational publishing house Houghton Mifflin Harcourt (NASDAQ:HMHC) crashed hard on Thursday following a mixed earnings report. The stock ended the session down 14%.

So what

Houghton Mifflin's second-quarter sales fell 35% year over year to $252 million. Net losses decreased from $0.33 per share to $0.30 per share over the same period. The bottom-line result was in line with Wall Street's expectations, but your average analyst had been looking for a beefier revenue reading of approximately $281 million.

An apple sitting on top of two stacked books

Image source: Getty Images.

Now what

Sales of printed books and on-site support services for educators were dramatically lower in the second quarter due to the COVID-19 pandemic. At the same time, digital materials and software-as-a-service solutions were in high demand. Digital platform usage rose 486% over the last 12 months and digital learning revenue more than doubled.

CEO John Lynch expects Houghton Mifflin to come out stronger on the other side of the pandemic, albeit with a very different product portfolio that skews heavily in favor of digital and online materials.

"This digital-first connected strategy, it's one we've been building toward, and the global pandemic has accelerated," Lynch said on the earnings call. "HMH Anywhere is one platform to support all subjects, all students, all teachers, anywhere. In-person, remote, or a hybrid model for instruction."

That makes plenty of sense, but many investors shrugged off Houghton Mifflin's rosy vision of the future to focus on a disappointing revenue haul instead. The stock has now lost 45% of its value year to date, even though share prices have nearly tripled from their April lows. Small-cap stocks like this one are often volatile because their long-term survival during difficult market conditions isn't always obvious. If you believe in Houghton Mifflin's increasingly digital future, you might want to pick up a few shares at these low prices.