Why ServiceSource International (SREV) Stock Is Plummeting Today

NEW YORK (TheStreet) -- ServiceSource International (SREV) was plummeting 33.6% to $4.15 after missing analysts' estimates for earnings and revenue in the first quarter, and a downgrade from analyst firm CLSA.

For the first quarter ServiceSource posted a loss of -7 cents a share, missing the Capital IQ Consensus Estimates of -5 cents a share by 2 cents. Revenue grew 10.2% year-over-year to $67.36 million in the quarter, but still missed analysts' estimates of $68.56 million.

Revenue this quarter came in below our expectations and we are moving aggressively to implement operational changes that will better align us with our customers," chairman and CEO Mike Smerklo said in a statement. "Our market opportunity and value proposition remain strong, as shown by several significant expansions in the quarter. To strengthen execution in each of our businesses, we will implement measures to better align our go-to-market engine and increase the effectiveness of our internal operations."

Following the disappointing results analyst firm CLSA downgraded ServiceSource to "underperform" from "buy."

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TheStreet Ratings team rates SERVICESOURCE INTL INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SERVICESOURCE INTL INC (SREV) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the IT Services industry. The net income has significantly decreased by 67.8% when compared to the same quarter one year ago, falling from -$1.19 million to -$1.99 million.
  • Net operating cash flow has decreased to $0.91 million or 32.41% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the IT Services industry and the overall market, SERVICESOURCE INTL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 44.34% is the gross profit margin for SERVICESOURCE INTL INC which we consider to be strong. Regardless of SREV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SREV's net profit margin of -2.57% significantly underperformed when compared to the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
  • You can view the full analysis from the report here: SREV Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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