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Why Cloopen Stock Soared 19%, Then Gave Most of It Back

By Rich Smith – Nov 18, 2021 at 4:44PM

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A better question might be: Why did Cloopen stock go up at all Thursday?

What happened

Shares of Cloopen Group Holding (RAAS 7.19%), a Beijing-based provider of cloud-based communications, soared by nearly 19% in early trading Thursday before executing a clean 180-degree turn and giving almost all of those gains back. By the close of trading, Cloopen stock was up by only 3.8%.

So what

As you've probably guessed already -- this being earnings season after all -- this was third-quarter earnings day for Cloopen. The company reported its Q3 revenues grew more than 125% year over year to $42.9 million, and its gross margins rose by 540 basis points to 43.5% -- offering plenty of reasons for investors to get excited.

That was the good news. Now here's the bad: $42.9 million may be more than twice the revenue Cloopen collected a year ago, but it was still less than the $43.3 million that Wall Street analysts had predicted it would book. As a result, Cloopen actually missed on the top line. The company also failed to earn a profit on all of this new revenue, instead losing $0.05 per share for the quarter.    

Chalkboard drawing of stock chart arrow going up being erased and pointing back down

Image source: Getty Images.

Now what

Cloopen also gave what appears to be disappointing guidance for the final quarter of the year, forecasting that sales will grow only by 26.8% to 28.7%. While those are pretty great numbers in the abstract, that rate of sales growth would be far slower than the triple-digit percentage pace set in Q3.

In addition, management didn't offer guidance about whether or not Cloopen will be profitable in Q4. For the record, analysts polled by S&P Global Market Intelligence are of the opinion Cloopen will not be. Indeed, most analysts don't see Cloopen turning its first profit before 2024 at the earliest.

Fact is, between the sales miss in Q3, the disappointing guidance for Q4, and the prospect of no profits for the foreseeable future, the biggest surprise from Thursday's trading session wasn't that Cloopen's gains largely failed to hold up -- it's that the stock ended the day up at all.

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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