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Why Switch Stock Fell on Tuesday

By Daniel Sparks - Mar 2, 2021 at 2:18PM

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Here's where the company may have missed the market in its fourth-quarter update.

What happened

Shares of Switch (SWCH 0.48%), a data center specialist, fell sharply on Tuesday. The stock declined as much as 15.8%, but is down 13.4% as of 1:30 p.m. EST.

The tech stock's decline follows the release of Switch's fourth-quarter financial results. Shares are likely down due to the company's worse-than-expected fourth-quarter revenue and 2021 revenue outlook.

A chalkboard sketch of a chart showing a stock price falling

Image source: Getty Images.

So what

The company reported fourth-quarter revenue of $127.7 million, up 6% year over year. On average, analysts were expecting revenue of $131.3 million. Non-GAAP (adjusted) earnings per share for the period was $0.06, beating a consensus forecast for $0.05. 

Management's outlook for full-year 2021 revenue between $540 million and $555 million was meaningfully lower than analysts' consensus view for revenue of $588 million. 

Now what

Management noted in its fourth-quarter update that its guidance includes an $18 million reduction in recurring revenue due to two customers deciding to transition some of their workloads "to a public cloud environment." It also said that, "Both customers are expected to maintain the balance of their hybrid workloads at Switch and the company does not anticipate further significant customer migrations at this time."

Despite these challenges, management was optimistic about the future.

"With the industry's highest rated and most sustainable enterprise class multi-tenant data centers, innovative edge colocation, secure storage solutions, and low-cost telecommunications offerings," explained Switch founder and CEO Rob Roy in the company's earnings release, "we believe that Switch is uniquely positioned to benefit from the accelerating digital transformation among enterprises."

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