Why Skillsoft Stock Dropped 21.6% This Week

What happened

Skillsoft (SKIL -9.07%) had another rough week in what has been a difficult year for the stock. The digital education company, which provides learning management systems and content for corporations and organizations, saw its share price plummet 21.6% this week, from market close last Friday through the closing bell on Sept. 8, according to data provided by S&P Global Market Intelligence. 

The stock price is down 75% on the year, as of Sept. 9, and is trading at roughly $2.27 per share.

So what

The week started off with analysts at B. Riley lowering the stock's price target from $11 per share to $7 per share, perhaps due to concerns ahead of earnings, which were released at the end the day on Wednesday, Sept. 7. The stock sank further on Thursday, about 15% on the day.

Skillsoft missed revenue and earnings estimates. For its fiscal second quarter, ended July 31, Skillsoft posted a 27% year-over-year increase in revenue to $140.5 million, but that fell short of the $184 million estimated by analysts. The company reported a net loss of $121 million, or $0.74 per share, which was well off the loss of $0.16 per share analysts expected.

Revenue from bookings for its subscription content -- which refers to all orders for content received during the period -- rose 5% year over year in the most recent quarter and 12% for the first half of the year. In addition, the dollar retention rate, which represents subscription renewals or upgrades, was up 3 percentage points to 98% compared to the previous year. However, bookings in the global knowledge segment, which covers information technology training, were down 21% in the quarter year over year, and 17% for the fiscal first half.

On Sept. 8, analysts at D. A. Davidson lowered their price target for Skillsoft from $7 per share to $3 per share on the struggles of the global content business, among other issues, according to The Fly. But they maintained their buy rating on the solid growth in the content business.

Now what

The near-term outlook doesn't look much better for Skillsoft, given expectations of an economic slowdown. In the earnings report, Skillsoft officials reduced their revenue and earnings targets on several factors, including macroeconomic uncertainty, the second-quarter sale of its SumTotal human capital management business, and the performance of the global knowledge business, which still hasn't recovered from pandemic-related business losses. The company sold SumTotal for $200 million to focus on its core businesses, but the sale will reduce revenue in the near term.

Bookings guidance was reduced to the $580 million to $615 million range, from $790 million to $825 million, while the outlook for adjusted revenue was reduced to the $545 million to $580 million range, from $765 million to $790 million. Also, the outlook for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was lowered to $105 million to $125 million, down from $167 million.