Please ensure Javascript is enabled for purposes of website accessibility

Why Ontrak Stock Plunged Today

By Jeremy Bowman - Mar 1, 2021 at 2:48PM

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 fast-growing telehealth company said it was losing its biggest customer.

What happened

Shares of Ontrak (OTRK 3.23%) were sinking today after the telehealth company said in its fourth-quarter earnings pre-release that it was going to lose its biggest customer later this year.

That news caused 2021 guidance to be much worse than expected; the stock was trading down 48.7% as of 1:02 p.m. EST.

An older man talks to a doctor on his laptop.

Image source: Getty Images.

So what

Ontrak, which is focused on chronic-disease management, reported solid results in Q4 with revenue growth of 149% to $29.3 million -- in line with estimates -- while its per-share loss narrowed from $0.39 to $0.07, beating the analyst consensus at $0.30.

However, the news that Ontrak-A, its biggest customer, was leaving stunned the market. As CEO Terren Peizer explained:

After a long process with our largest customer where we believed we were working toward an extended and expanded contract, we were notified after market close on February 26, 2021 that our participation status with this customer will be terminated effective June 26, 2021.

Peizer pinned the blame for Ontrak-A's departure on that customer's use of different performance-evaluation metrics than Ontrak's other customers use. He also said the company had a strategy to win back Ontrak-A's business and expressed optimism about Ontrak's long-term growth, saying it was focused on a $30 billion market opportunity.

Now what

Because of the loss of Ontrak-A, Ontrak slashed its revenue guidance for 2021 from $165 million to $100 million, showing that Ontrak-A was responsible for more than a third of the company's business. With the revised guidance, management now sees revenue increasing just 21% in 2021, though it anticipates returning to 100% revenue growth in 2022, citing the strength of its pipeline.

Given the sharp reduction in its guidance for the year and the loss of Ontrak-A, it's not surprising to see the stock getting slashed in half today. Whether or not the loss of Ontrak-A is a one-off incident or reflective of greater problems with the company's product or its customer retention is unclear. But for now, investors are clearly playing it cautiously with this high-flying growth stock .

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

Ontrak, Inc. Stock Quote
Ontrak, Inc.
OTRK
$1.60 (3.23%) $0.05

*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 service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

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.