Smith Micro Software tumbles to new 52-week low on lower Q3 profit
Shares of Smith Micro Software, Inc. (Nasdaq: SMSI), tumbled to a new 52-week low today after the wireless communications software products and services developer reported after Wednesday’s close that its third-quarter profit fell on account of rising costs.
For the three months ended Sept. 30, the small cap recorded earnings of $0.47 million, or $0.02 per share, compared with $2.5 million, or $0.09 per share earned in the same quarter last year. Excluding stock options costs and the amortization of intangibles, the company earned $0.21 per share for the quarter, right in line with the mean estimate of eleven analysts surveyed by Thomson Financial.
Despite lower profit, the company managed to book strong revenues of $20.4 million, a 38% increase over the $14.8 million reported in the third quarter of 2006. Eleven analysts on average were projecting revenues of $20.08 million for the quarter.
Adding to investors’ glum, Smith Micro Software was downgraded by Merriman Curhan Ford and Piper Jaffray.
Merriman Curhan Ford analyst Seth Potter downgraded the company to a rating of “neutral” from “buy,” citing in a research note that he believes that, “the changing industry dynamics, customer concentration and potential dilutive acquisition/integration risk outweighs the company's in-line third quarter.”
Potter says investors should remain on the sidelines, as the market has already priced in the company’s wireless application prospects and shares are fully valued at the current share price.
The analyst says the company’s revenue base is not diversified enough, as Verizon Wireless (NYSE: VZ) comprises more and more of the company’s income stream. According to Potter, Verizon accounted for 69% of the company’s revenues in the third quarter, up from 60% in the second quarter.
Potter says he thinks the company’s acquisition strategy is “key,” as any differing revenues would diversify its revenue base.
As a result of the combination of estimated slower multimedia revenue, increasing operating expenses and taxes, along with a more competitive environment, Potter said he is lowering his fiscal year 2008 EPS estimate to $0.76 from $1.00. The consensus of eleven analysts polled by Thomson Financial is for 2008 EPS of $0.95. Potter forecasts earnings of $0.82 for fiscal 2007, while eleven analysts polled by Thomson expect earnings of $0.84.
Shares of Smith Micro Software (SMSI) fell 25.83%, or $3.97, to a new 52-week low of $11.44 at 1:18 p.m. ET. Shares of Smith Micro Software have been trading in the range of $11.10 to $21.20 for the past 52 weeks.
