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Why Aterian Stock Plunged on Monday

By John Ballard – Aug 9, 2021 at 12:14PM

Key Points

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The company delivered lower-than-expected earnings results, and the next quarter could be just as challenging.

What happened

Aterian (formerly known as Mohawk Group Holdings) (ATER 9.09%) reported second-quarter earnings results that came in well below the consensus analyst estimate. The stock was down 38.7% at 10:53 a.m. EDT on Monday.

The stock climbed 192% in 2020 as demand for its products, such as kitchen appliances and other household goods, accelerated. 

Aterian is facing new obstacles in 2021, with tough year-over-year growth comparisons and rising shipping costs that are pressuring profitability. The stock is currently down 71% year to date, trailing the NASDAQ Composite with its return of 15.2%.

ATER Chart

ATER data by YCharts

So what

On the surface, the Q2 results don't look bad. Revenue grew 14% year over year to $68 million. Gross margin ticked up to 48% from 46.2% in the year-ago quarter.

However, analysts were expecting revenue of $94 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $3.3 million. Aterian reported an adjusted EBITDA loss of $3.7 million compared to a gain of $3.4 million in Q2 2020. 

"This has been a challenging quarter for e-commerce marked by a global supply chain crisis, inflation, and an extreme shift in consumer behavior due to the opening of brick-and-mortar stores after the relaxation of COVID-19 related restrictions," CEO Yaniv Sarig said in a statement. 

A business person pointing to a chart during a meeting in a conference room.

Image source: Getty Images.

Now what

Given the uncertainty, management withdrew from offering guidance for near-term financial results. Sarig called the supply chain constraints "a global crisis" with container rates up 500% compared to last year. While Sarig sees a path out of this mess, he says it won't be smooth sailing:

We believe that through relationships we have with several large logistics companies we have a path forward to secure a​​ sufficient number of containers for the next twelve months, at sustainable reduced costs from the current spot rates. We are gradually leveraging these new shipping relationships but additional operational changes over the next few months will be required to fully benefit from them.

Sarig remains optimistic about the company's long-term growth potential. "We remain confident that we have the best in class platform to execute at scale on the highly sought after strategy of building the e-commerce consumer company of the future, despite the temporary global shipping crisis," he said.

Most notably, Aterian believes its AIMEE technology platform, which combines artificial intelligence and other automated algorithms, will help the company succeed in identifying new products and customers to reach through major e-commerce platforms, whereas it primarily relies on Amazon and Walmart to sell goods right now. 

Still, investors should be cautious. Small-cap stocks can be volatile around big news events like earnings announcements, so investors should expect more wild price swings in the near term as Aterian navigates difficult waters in the near term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Aterian, Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Aterian, Inc. Stock Quote
Aterian, Inc.
ATER
$1.20 (9.09%) $0.10
Walmart Stock Quote
Walmart
WMT
$153.22 (-0.10%) $0.15
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37

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