Shares of optical networking equipment maker Infinera (INFN 2.62%) tumbled 13.7% through 11:40 a.m. ET on Thursday after the company reported preliminary financial results for fiscal Q4 2023 this morning.
Wall Street analysts had been expecting Infinera to report about $437 million in sales for the period ended Dec. 30, 2023, and profits of $0.09 per share, adjusted for one-time items. Infinera didn't 100% guarantee that it will miss those numbers, giving instead what amounts to a preview of results that imply it might either hit or miss the targets.
Q4 sales will range from $435 million to $452 million, while earnings could be as little as $0.07 per share or as much as $0.13 per share.
Why investors are selling Infinera stock today
And yet those numbers actually don't look too bad, do they? Taken at the midpoints ($443 million in sales and $0.10 per share in earnings), both ranges provided by Infinera today imply that the company is more likely than not to beat expectations when its final, official, and audited earnings report arrives.
So why are investors selling off Infinera stock?
One reason might be the fact that the earnings Infinera emphasized are non-GAAP (adjusted). Management said its earnings according to generally accepted accounting principles will be significantly lower than the pro forma figures cited, and could even be negative -- anywhere from a loss of $0.02 per share to a profit of $0.04 per share. (On the other hand, the company had previously warned that losses might be as high as $0.04 per share, so a shift to $0.02 as the worst-case scenario is still an improvement.)
What's next for Infinera?
All that being said, and leaving open the possibility that Infinera will ultimately end up outperforming when the final Q4 numbers come out, investors' real worry about Infinera resides in the company's guidance for the Q1 2024 currently underway.
CEO David Heard summed up Infinera's Q4 performance by saying the company "ended 2023 on a high note with a strong fourth quarter." But turning to guidance, he then proceeded to warn that Q1 2024 sales will be only $320 million to $350 million, the entire range of which falls below Wall Street's expected $378 million in sales. Worse, Infinera said its GAAP loss in Q1 could be as much as $0.17 to $0.25 per share -- versus a Wall Street prediction of a $0.01 per share profit.
Yes, you read that right. Wall Street hoped that after eight years of non-stop losses, 2024 might be the year that Infinera would finally turn the corner and begin reporting profits again. But Infinera just said that this is not actually going to happen -- or at least, it's not going to happen in Q1.
If you ask me, this is the real reason why investors are selling off Infinera stock today.
