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 Benefitfocus (NASDAQ:BNFT), a provider of cloud-based software for managing employee benefits, exploded higher on Wednesday after the company beat analyst earnings estimates and announced that consulting firm Mercer had taken a 9.9% stake in the company. As of 12:15 in the afternoon, shares of Benefitfocus were up 61%.
So what: Benefitfocus reported revenue of $40.2 million for the fourth quarter, up 33% year-over-year and slightly higher than what analysts were expecting. This revenue was split almost equally between sales to employers and to insurance carriers, with growth from employer sales growing at a faster rate of 47%.
Non-GAAP EPS came in at a loss of $0.39, about nine cents lower than the fourth quarter of 2013. Analysts were expecting far worse, however, with the average estimate sitting at a loss of $0.62 per share. On a GAAP basis, the company reported a loss of $0.54 per share, significantly lower than the loss of $0.34 per share reported during the fourth quarter of 2013.
Along with this earnings beat driving shares higher, Mercer, a wholly owned subsidiary of Marsh & McLennan Companies (NYSE:MMC), has taken a nearly 10% stake in Benefitfocus, with the option to increase this stake over time. Mercer operates Mercer Marketplace, a private benefits exchange which is powered by Benefitfocus technology.
Now what: Benefitfocus's earnings beat was largely the result of low expectations from analysts; profitability deteriorated year-over-year on both a GAAP and non-GAAP basis. However, the strategic investment from Mercer could signal that an acquisition may eventually be in the cards. Mercer parent Marsh & McLennan is a $30 billion company, with Benefitfocus' market capitalization just shy of $1 billion after the big rise in the stock today.
Long-term investors should never buy a stock solely on the hopes of a takeover, however, and with Benefitfocus posting consistent losses and trading for around seven times sales, the stock doesn't look very attractive.
Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.