Source: Illumina

Judging from Illumina's (NASDAQ:ILMN) after-hours drop of nearly 11% on Tuesday before its partial recovery, you might think the genomic sequencing company reported horrible second quarter financial results. That wasn't really the case, though. Why did the market react so negatively to Illumina's latest earnings numbers?

By the numbers
If investors only focused on earnings, there would be a lot to like with Illumina's recent quarter. The company reported GAAP net income for the quarter of $102 million, or $0.69 per diluted share. That reflected a big jump from the same quarter in 2014, when Illumina announced GAAP net income of $47 million, or $0.31 per diluted share.

Illumina's non-GAAP numbers looked solid as well. The company posted non-GAAP earnings of $120 million, or $0.80 per diluted share, compared to $85 million, or $0.57 per diluted share, in the second quarter of last year. Analysts expected $0.77 per share.

Problems emerged, however, on the revenue front. Wall Street expected Illumina's sales to come in at $541.77 million. Illumina's actual revenue of $539 million fell short of that mark. On the plus side, the figure reflected a nice 21% year-over-year jump compared to the $448 million in revenue reported for the second quarter of 2014. 

Behind the numbers
Jay Flatley, Illumina's CEO, stated that his company "delivered solid financial results in the second quarter with increasing demand" for new products. Despite investors' disappointment, he was right.

Product revenue grew at a solid 18% year-over-year rate. Other revenue, which primarily consists of services, jumped 34% year-over-year. Demand appears to have remained relatively strong for Illumina's HiSeq and NextSeq sequencing systems.

Like other companies with significant international sales, currency fluctuations make a difference for Illumina. The company's revenue would have been 25% higher than the same quarter of 2014 if currency rates remained constant.

The primary culprit behind Illumina's big after-hours drop appears to be simply that the stock is priced for perfection. When perfection isn't achieved, shares fall. Illumina's revenue missed estimates by only half of a percentage point -- but any miss looms large for a stock with an earnings multiple of 82.

Looking ahead
In reality, Illumina's prospects look just as bright -- maybe even brighter -- after its second quarter results announcement. The company still forecasts revenue growth in fiscal 2015 of 20%. Illumina also bumped its full-year non-GAAP earnings outlook up to a range of $3.39-$3.45 per diluted share from $3.36-$3.42 per diluted share.

The company launched its HiSeq X Five system in the second quarter, which followed the tremendous success of the higher-powered HiSeq X Ten. Illumina should reap rewards from this launch in the months to come.

Narrow revenue misses like the one in the second quarter produce short-term pain for shareholders -- but the pain isn't so bad when investors focus on the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.