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Why Immersion Stock Plunged on Tuesday

By John Ballard – Updated Aug 17, 2021 at 12:57PM

Key Points

  • Revenue growth accelerated to 93%.
  • Immersion scored a deal to supply haptics technology to Peloton Interactive, showing the potential to expand beyond core markets.

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The haptics technology provider turned in solid earnings results, but the growth failed to meet investor expectations.

What happened

Immersion's (IMMR 2.83%) stock price was down 7.6% at 11:03 a.m. EDT on Tuesday. The provider of haptics touch technology delivered stellar second-quarter earnings on Monday. Total revenue growth accelerated to 93% year over year, reaching $11 million. This is higher than the 14% growth in Q1 2021 and decline of 35% in the year-ago quarter.

Immersion is a small-cap stock with a market capitalization of just $204 million, so wild price swings can be normal after big news. However, the sell-off here looks puzzling, as the results look solid all around, and management even noted recent momentum with key customers of its touch technology.

Despite the accelerating growth, the stock is down 40% year to date, which trails the broader market, as measured by the NASDAQ Composite index.

IMMR Chart

IMMR data by YCharts

So what

Sometimes the market doesn't react the way you expect after a good or weak quarter. Immersion reported not only accelerating revenue growth but also solid results on the bottom line.

Operating expenses declined 23% year over year, helping boost net income to $5.3 million for the quarter, or earnings per share of $0.17. This is a noticeable improvement over the year-ago loss of $0.7 million, or $0.03 per share.

In a statement, CEO Jared Smith said, "The results that we are reporting today reflect the continued success of our customers and partners in developing and shipping high performance haptic products and solutions in the automotive, gaming, and mobile market segments." 

Man seated on couch is using tablet.

Image source: Getty Images.

Now what

Immersion is seeing momentum across its main business segments. It supplies haptics innovations for game console manufacturers including Microsoft, Nintendo, and Sony. Management is pleased that sales of Sony's PlayStation 5 have now exceeded 10 million units since launching last fall, providing extra demand for Immersion's haptics products.  

Elsewhere, the company said that Peloton Interactive, the fast-growing maker of interactive fitness bikes, executed a technology license with it during the quarter. During the earnings call, Smith wouldn't say specifically what the company was doing with Peloton but mentioned that Immersion has the potential to apply its technology outside of its core markets of auto, gaming, and mobile. 

Investors should be aware that Immersion has not shown much growth over the past 20 years, and that explains why the stock is essentially flat over the last five years, despite wild swings in the stock price. 

IMMR Chart

IMMR data by YCharts

However, past performance is not always an indicator of future performance, so if Immersion can continue to expand its haptics technology to other use cases, this stock could eventually move higher. But until it can show sustainable growth every year, investors should keep their expectations in check.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Microsoft. The Motley Fool owns shares of and recommends Microsoft and Peloton Interactive. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.

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