What happened
My, what a difference three months make!
Three months ago, cloud communications company Bandwidth (BAND 1.46%) was on cloud nine, beating earnings and soaring 40% and more in a day after reporting Q3 earnings -- and promising even more good news in Q4.
Three months later, Q4 is here! Bandwidth's news is just as great as was promised, and arguably even better. And yet, Bandwidth stock is falling 28.1% through 12:35 p.m. ET on forecasts of a less profitable Q1 2023.
So what
So what did Bandwidth report this morning? Oh, just $0.19 per share in "adjusted" earnings, where Wall Street was only expecting $0.04, and just $157 million in sales, where analysts had forecast $147 million -- a 25% year-over-year growth rate. In short, Bandwidth beat on both the top and bottom lines as customers flocked to take it up on its offer of "migrating voice, text messages and emergency calling to the cloud."
But it wasn't sales or earnings that were the problem.
Much like Bandwidth's share price got a big boost from management promising big things three months ago, the shares seem to be suffering today because of disappointment with management's guidance. Citing the "current macroeconomic environment" and "campaign messaging cyclicality," Bandwidth CFO Daryl Raiford warned this morning that Bandwidth's revenue growth will be "constrained" throughout 2023.
Now what
How rough will things get for Bandwidth in 2023? Management is forecasting sales of about $133 million for the first fiscal quarter, and sales of about $580 million for the year. This implies a sharp sequential decline in sales quarter over quarter, and almost zero growth (actually, 1%) in revenue over the course of the full year -- a sharp reversal from the 17% full-year sales growth that Bandwidth enjoyed in 2022.
Notably, management did not say what it expects its GAAP profits will be in 2023, giving guidance instead in the form of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Management hopes this number will be positive -- $5 million in Q1, and perhaps $45 million for the year. But when you consider that Bandwidth's GAAP profits even in Q4 were negative $0.16 per share -- in contrast to the $0.19 per share headline non-GAAP profit -- the chance of Bandwidth earning a GAAP profit this year on essentially no change in revenue seems slim.
At a share price more than 60 times even optimistic analyst forecasts for forward earnings, and slow or no growth all year long, investors are probably right to be leery of Bandwidth stock today.
