What happened
Shares of communications technology company Credo Technology Group Holding (CRDO +6.83%) won the dubious distinction of being the Nasdaq's second-worst performing stock Tuesday morning. It was down by 46% through 10:40 a.m. ET after management issued a startling earnings warning Monday night.
NASDAQ: CRDO
Key Data Points
So what
In an 8-K filing with the SEC, Credo advised that its "largest customer," responsible for approximately 30% of the sales the company makes, "has reduced its demand forecast for certain Credo products." As a result of this unfortunate event, which Credo says is unrelated to its own performance, the company warns that its revenue for its fiscal Q4 2023 (which ends April 29) will be no more than $32 million, and potentially as low as $30 million, in contrast to the $58.3 million that analysts had been forecasting.
And it gets worse.
This reduction in demand seems not to be a one-time thing, but something that will persist and depress the company's sales all through the coming year. Management now says its revenues for its fiscal 2024 (which kicks off on April 30) will be flat compared to fiscal 2023.
Now what
Let's crunch some numbers. Through the first half of its fiscal 2023, Credo collected $97.8 million in revenue. Its fiscal Q3 numbers aren't out yet, but analysts are forecasting $55.1 million. Add $31 million (the midpoint of new guidance) for fiscal Q4, and that brings Credo's top line to perhaps $183.9 million for the year.
This is well short of the $211 million-plus in revenue that Wall Street was expecting. Worse, Credo's warning about fiscal 2024 implies that revenues won't be much better than $184 million next year, either -- and that's more than 40% below Wall Street's recent consensus forecast for $312.6 million in sales.
Credo's 46% sell-off on Tuesday morning may seem dramatic. Given the size of these forecast shortfalls, however, I cannot say it's an overreaction.
