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Why Avaya Stock Crashed 13% This Morning

By Rich Smith - May 6, 2021 at 12:11PM

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Avaya's Q2 earnings miss could be only the beginning.

What happened

Shares of communications software company Avaya (AVYA 0.12%) dropped 13.1% through 10:55 a.m. EDT Thursday after the company reported a small earnings miss -- but a much bigger miss on guidance -- this morning.

Heading into earnings, analysts had predicted that Avaya would earn $0.75 per share, pro forma, on sales of $717.7 million in its fiscal Q2 2021. As it turned out, Avaya beat that revenue number, reporting sales of $738 million, but fell just short of analysts' earnings target, delivering a per-share profit of only $0.74 per share.  

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Quarterly revenues grew a respectable 8% year over year, and the company's cloud software division posted 31% growth. Recurring revenue (the tastiest flavor of revenue) grew to make up 66% of Avaya's revenue stream -- that's the good news.

The bad news is that despite all this revenue growth, Avaya still came up short on profits. In addition to the "miss" on pro forma profits, Avaya delivered an actual loss when earnings were calculated according to generally accepted accounting principles (GAAP) -- $0.70 per share. Granted, that was better than the $7.24 per share Avaya lost in the depths of the pandemic in last year's Q2, but it was still a GAAP loss.

Now what

Perhaps worse in investors' minds than the Q2 earnings miss, however, was Avaya's guidance. Looking ahead to Q3, Avaya predicts that sales will range from $720 million to $735 million, and pro forma profits from $0.66 to $0.73. At the midpoint of those ranges, that prediction falls short of analyst expectations for $730 million in sales and $0.80 in pro forma profit.

Avaya sees fiscal 2021 revenue coming in between $2.92 billion and $2.96 billion, just matching analyst expectations. Avaya's earnings projection, meanwhile, is for pro forma profits of between $3.02 and $3.20 per share -- well below Wall Street's desired $3.32-per-share pro forma profit.

Long story short, Avaya missed earnings in Q2...and it seems it's going to keep on missing all year long.

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