Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Rally Software Development Corp. (NYSE: RALY) dropped more than 25% Friday after the company reported mixed third-quarter results, then followed up with weak forward guidance.
So what: Quarterly sales rose 28% year over year to $18.9 million, which translated to a non-GAAP loss per share of $0.17. By contrast, analysts were looking for a larger adjusted net loss of $0.26 per share on higher sales of $19.05 million.
In addition, Rally stated fiscal fourth-quarter revenue should come in the range of $19.2 million to $19.4 million, representing a deceleration of growth to 24% to 25% over the same period last year. What's more, Rally's Q4 adjusted net loss is expected to be $0.26 to $0.24 per share, compared to expectations for a net loss of $0.20 per share on $20.4 million in sales.
Now what: While management admitted their already seasonably slow third quarter was "a little softer" than even they expected, they also reassured investors during the subsequent conference call they "see nothing in the business that suggests that something's afoot or something's wrong, [...] or that there was a micro dynamic that we were not aware of."
Even so, until Rally Software can stop burning cash, maintain its top-line growth, and prove it has what it takes to achieve sustained long-term profitability, I can't blame investors for taking a step back.
