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Why Cinedigm Stock Crashed on Tuesday

By Anders Bylund – Nov 16, 2021 at 2:28PM

Key Points

  • The company is moving away from digital cinema equipment sales to focus on media-streaming services instead.
  • The transition has not been smooth and the small-cap stock is prone to sudden drops at the first hint of bad news.

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Investors were not pleased with the company's second-quarter results.

What happened

Cinedigm (CIDM -1.72%) reported second-quarter results on Tuesday morning. Investors took one look at the mixed report and started running for the exits. The content producer and media-streaming services operator traded 26.9% lower by 2:35 p.m. EST, essentially erasing the gains of the last three months.

So what

Cinedigm's second-quarter sales rose 41% year over year to $10.1 million. The bottom line showed a breakeven result, up from a net loss of $0.23 per share in the year-ago period. Wall Street's consensus estimates had called for a net loss of roughly $0.02 per share on revenue near $10.9 million. Cinedigm traders shrugged off the earnings surprise to focus on the revenue miss instead.

A hand points a TV remote at a modern big-screen TV, which shows a screen full of static.

Image source: Getty Images.

Now what

The cinema equipment division reported sales of $2.2 million, a sharp increase from $643,000 in the year-ago period. These revenues are naturally lumpy because the sale of one new digital cinema system outweighs royalties and service fees for Cinedigm's installed systems.

Meanwhile, streaming services posted a 64% revenue jump while the media distribution operation saw sales fall by 69% instead, which worked out to a 5% sales boost in the content and entertainment segment as a whole.

As these figures show, Cinedigm is undergoing a rocky strategy shift these days. The struggling health of the movie theater industry isn't doing Cinedigm any favors, even though the company has chosen a new direction focused on digital streaming services.

Investors with an interest in turnaround stories might want to take a closer look. Be warned that the road ahead looks rocky, though. Cinedigm is a small company with unpredictable revenue streams, and it doesn't take much of a miss to trigger a substantial plunge like the one you see today.

Anders Bylund 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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