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Why Butterfly Network Was Down 20% on Monday

By Brett Schafer – Nov 15, 2021 at 3:16PM

Key Points

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The digital health company reported disappointing earnings results and lowered full-year guidance.

What happened

After Butterfly Network (BFLY -5.10%) reported its earnings results for the third quarter, its shares were down as much as 21.5% on Monday. The digital health company, which is trying to bring medical imaging to everyone, drastically reduced its full-year guidance, and this move likely gave investors pause on the company's potential over the long term. As of 2:22 p.m. ET, shares of Butterfly Network stock are down 15.5% for the day.

So what

Before the opening of the market this morning, Butterfly Network released its earnings for the three months ending in September. The top-line number looked solid, with revenue growing 44.3% year over year to $14.6 million in the period. But as we move down the income statement, things start to look a lot worse.

A medical professional administers an ultrasound to a patient.

Image source: Getty Images.

First, Butterfly's gross margin was negative 35% in Q3. This was mostly because of a non-cash charge on purchase commitments that Butterfly lost, so it doesn't impact the company's cash flow. However, losing a purchase agreement is not a good sign for a company that is supposed to be revolutionizing ultrasound imaging with its at-home Butterfly iQ+ device.

The worst part of the report came with Butterfly's guidance for 2021. Management now expects revenue to be $60 million to $62 million this year, which is significantly below the guidance it gave out in Q1 of $76 million to $80 million.

Now what

A share reduction in revenue guidance is never a good thing for a company and is likely a big reason why Butterfly's stock is down so much on Monday. With a market cap of $1.4 billion and an expectation of only $60 million to $62 million in revenue this year, Butterfly Network's financials need to grow significantly over the next few years. If that doesn't occur, the stock could fall much further from here. 

Brett Schafer 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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