ChannelAdvisor provides software-as-a-service (SaaS) solutions worldwide, allowing customers to integrate, manage, monitor, and optimize their merchandise sales in various online channels.
The cloud provider expects quarterly revenue of $23.7 million for the three months ended Dec. 31, 2014, compared to prior guidance of revenue in the range of $25.6 million to $26.1 million.
"We are disappointed that the fourth quarter did not meet our guidance. We saw an unusual shift of gross merchandise volume (GMV) to larger customers this holiday season at the expense of smaller customers. Because larger customers enjoy volume discounts in the form of lower take rates, this shift translated to lower variable subscription revenue, even though overall GMV increased 31% year over year for the fourth quarter," said Scot Wingo, CEO of ChannelAdvisor, in a press release.
"This resulted in fixed subscription revenue for the fourth quarter growing approximately 27% while variable subscription revenue decreased approximately 5% compared to a year ago," Wingo added. "Despite this, we believe our fundamental value proposition, position in the market, and opportunities for continued growth remain intact. As fixed subscriptions grow as a percentage of overall revenue, we expect our overall visibility to improve as we look to continued growth in 2015."
Shares were down 53% to $9.98 at last check on strong volume. Roughly 6 million shares were changing hands The stock's three-month average daily trading volume is around 353,000 shares. Several Wall Street analysts downgraded the stock on Tuesday. Here's what they had to say.
Karl Keirstead, Deutsche Bank (downgrade to Hold from Buy; $16 PT)
Third-party ecommerce SaaS vendor ChannelAdvisor (ECOM) preannounced 4Q14 results ahead of the earnings date on February 5th. Revenues of $23.7m (+16% y/y growth) will be below the previous guide of $25.7m-$26.1m (+27% y/y growth at high-end). ECOM also said that its 4Q14 adjusted EBITDA loss would fall below its prior guidance (of $0.4 million at the midpoint) and that 2015 revenues will be below ECOM's prior guidance for 28% growth. This is the second miss in three quarters and has dented our confidence in the business. We're lowering our rating to a HOLD and moving our PT to $16 from $22.
The challenges facing ECOM is not the overall health of online ecommerce or the GMV growth its customers are posting (a solid 31% in 4Q14). Rather, in our view, ECOM is being pressured by churn at the low end of its retail customer base and weak pricing leverage at the high end of its customer base, a reflection of a tough end market (the retail sector) and/or a weaker-than-expected value proposition for its core product. In mid-December, ECOM's direct rival Mercent sold itself to CommerceHub, a subsidiary of Liberty Interactive (LINTA) , leading us to wonder if Mercent was seeing similar pressures.
Colin Sebastian, Baird Equity Research (downgrade to Neutral from Outperform; $18 PT from $32)
Revenue miss a big surprise given solid e-commerce trends. Despite generating solid (in-line) transaction volumes in Q4, an unexpected mix shift to lower commission/take-rate customers during the holiday shopping period resulted in revenues below guidance. While there are still healthy underlying macro trends, and ultimately a shift to larger enterprise-level clients may prove positive, for now we are moving to the sidelines with a Neutral rating until there is better visibility into ChannelAdvisor's growth trajectory.
After market close, ChannelAdvisor announced preliminary 4Q revenues of $23.7M (+15.6% Y/Y vs. +26.1% Y/Y 3Q14), below the previous guidance range of $25.6-$26.1M and consensus ($25.9M). The miss was driven by an unusual shift in GMV to larger (possibly higher quality) customers, which pay lower take rates and are weighted towards fixed rather than variable fees. While we recognize that this shift may ultimately generate more consistent results, it also suggests the company is moving into a transitional period of slower growth. Management indicated particular weakness among eBay clients (small-sellers), consistent with our Tracker through mid-December, perhaps reflecting consumer preference for bigger brands/retailers during the time sensitive holiday period.
Chad Bartley, Pacific Crest Securities (downgrade to Sector Perform from Outperform; N/A PT)
The surprise preannouncement hurts our previous thesis that ChannelAdvisor can sustain high-20% revenue growth while expanding margins by roughly 1,000 basis points in 2015 and reaching EBITDA breakeven in 2016. It also raises concerns about ChannelAdvisor's visibility on the business, policies around customer contracts and renewals, and strategy to target larger, or enterprise class, retailers. Because larger retailers have lower take rates, we are concerned that growth and leverage will be harder to achieve even beyond 2015. As a result, we are lowering our forecasts and rating.
Based on our new 2015 revenue forecast and ECOM's previous trading range, we see downside risk to roughly $12 to $13, which is near 2x EV/sales. Uncertainty and concerns around the business model, growth outlook and profitability should weigh on ECOM and its multiple for several quarters, in our view. Should fundamentals and trends improve, the multiple could expand back to roughly 4x EV/sales, or roughly $20.
TheStreet Ratings team rates CHANNELADVISOR CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHANNELADVISOR CORP (ECOM) a SELL. This is driven by a number of negative factors, 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 feeble growth in its earnings per share, deteriorating net income, weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CHANNELADVISOR CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. For the next year, the market is expecting a contraction of 23.2% in earnings (-$1.01 versus -$0.82).
- 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 Internet Software & Services industry. The net income has significantly decreased by 109.7% when compared to the same quarter one year ago, falling from -$4.29 million to -$9.00 million.
- Net operating cash flow has significantly decreased to -$2.72 million or 65.61% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 49.27%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 80.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Compared to other companies in the Internet Software & Services industry and the overall market, CHANNELADVISOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: ECOM Ratings Report
- Written by Laurie Kulikowski in New York.