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Why Latch Stock Slumped on Friday

By Brett Schafer – Aug 13, 2021 at 1:52PM

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Investors were not happy with the company's Q2 earnings results.

What happened

Shares of Latch (LTCH -3.71%) were down big on Friday after the company reported its second-quarter earnings results. The stock was down as much as 17% on the day and was down around 16.3% as of 1:15 p.m. EDT today. 

So what

Latch reported its second-quarter results after the close on Thursday, the first as an independent public company (it started trading publicly after its SPAC merger in June). Revenue was $9 million in the period, up 227% year over year, but it had a GAAP net loss of over $40 million in the quarter.

A person sitting on moving boxes looking at their phone.

Image source: Getty Images.

Latch sells software and hardware to apartments and other large real estate buildings to help tenants and building managers improve security and efficiency in their living spaces. Since it sells long-term contracts to apartment buildings, it is only allowed to recognize part of its booked contracts each year as revenue.

This has led contract bookings to be much higher than revenue for Latch, which happened again in the second quarter. Bookings were $95.8 million in the period, up 102% year over year and more than 10 times the revenue recognized in the period. Investors should expect bookings and revenue to be mismatched if Latch can continue signing buildings at a rapid rate.

Now what

Latch stock looks expensive, with a market cap of $1.4 billion versus quarterly revenue of only $9 million. But if you believe Latch can continue growing rapidly, and trust that its bookings will lead to highly reliable revenue, this drop could be a buying opportunity for investors. A high valuation adds some risk to buying Latch, but with a business growing this quickly, a $1.4 billion market cap could look a lot more reasonable a few years from now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Latch, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Latch Stock Quote
Latch
LTCH
$0.70 (-3.71%) $0.03

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