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Why Duck Creek Technologies Stock Just Crashed 22%

By Rich Smith – Oct 15, 2021 at 1:52PM

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This isn't how earnings beats usually work.

What happened

Shares of insurance industry software-as-a-service provider Duck Creek Technologies (DCT -0.16%) collapsed in Friday trading, falling 21.7% through 1 p.m. EDT after reporting what -- at least at first glance -- appeared to be a fine fourth-quarter 2021 earnings report last night.

Expected to earn $0.02 per share, pro forma, on sales of $69.1 million, Duck Creek turned in a $0.02 per share profit on sales of $70.8 million -- not a huge earnings beat, but a beat nonetheless.  

Big red arrow going down over a stock chart.

Image source: Getty Images.

So what

Recurring revenue at the software provider increased 41%, and subscription revenue grew 35%. Total sales for the quarter were up 21%. That's the good news.  

The bad news is that Duck Creek's earnings really weren't earnings at all -- not when calculated according to generally accepted accounting principles (GAAP), at least. Instead, the company reported a GAAP net loss for the quarter of $0.04 per share, and a loss of $0.13 for the year.

Now what

On top of that, Duck Creek's guidance for the first quarter of fiscal 2022, and for the year as a whole, was pretty iffy. For the year's first quarter, Duck Creek predicted revenue ranging from $68 million to $70 million, which at the midpoint would just barely surpass Wall Street's predicted $68.7 million. Worse, Duck Creek warned that its sales tally by year end -- $292 million to $300 million in revenue -- will fall significantly short of the $303 million analysts had forecast.

In a note this morning, RBC Capital warned that this implies a "meaningful" slowdown in the company's growth going forward, and J.P. Morgan downgraded the stock on the weak forecast, which it said no longer supports the company's "cloud and growth thesis."

Hence the sell-off on an earnings beat today.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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