What happened
MeridianLink (MLNK +0.00%) stock fell hard on Wednesday, declining 26% by 1 p.m ET, compared to a 1.3% drop in the S&P 500. The dive wasn't enough to put shareholders behind the market's returns for the year, though. The stock remains higher by 20% in 2023 compared to the 18% rally in the S&P 500.
Wednesday's drop was amplified by the wider market slump that affected most stocks. But the bigger factor was MeridianLink's Q2 earnings update that contained signs of mounting pressures on the business.
So what
Sales grew by just 3% in the Q2 period that ran through late June, marking a slowdown from the prior quarter's 6% increase. The data services specialist, which serves mostly financial institutions, noted strong demand for its lending software solutions. In a press release, CEO Nicolaas Vlok also highlighted "solid bookings momentum and successful services delivery," as bright spots for the period.
NYSE: MLNK
Key Data Points
MeridianLink generated plenty of cash and remained in positive territory in terms of operating profits. But it lost money overall, with net losses landing at $5 million, or 7% of sales.
Wall Street wasn't thrilled to see those losses, but the bigger concern was MeridianLink's cautious short-term outlook.
Now what
Executives see third-quarter sales landing between $76 million and $78 million, or slightly below the average Wall Street pro's forecast. Management also reduced its full-year outlook and is now calling for revenue to be between $302 million and $306 million, down from the early May forecast range of $307 million to $313 million. The earnings picture darkened slightly as well. MeridianLink is now expecting non-GAAP (adjusted) profit of between $104 million and $108 million compared to the prior forecast of between $109 million and $115 million.
It's no surprise that the stock would see pressure from this downgraded sales and earnings outlook, even though the changes were modest. Given the rally in the share price in 2023, many investors were likely hoping to see a rising outlook rather than a falling one.
That's no threat to the wider investing picture, of course. But it does imply that volatility will continue for this stock while Wall Street tries to judge whether demand trends are deteriorating, stabilizing, or improving.
