SmileDirectClub stock plunges despite beating analysts' earnings expectations

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An argument could be made that SmileDirectClub (SDC) did just about everything it could to brighten up its stock price on earnings day Tuesday evening.

The bottom line came in ahead of Wall Street estimates. Sales soared. The full-year sales outlook was set above analyst forecasts. The company’s earnings call all but said SmileDirectClub isn’t too far removed from profitability.

Yet in the post Uber IPO letdown world — where investors aren’t rewarding companies for future potential but only on their near-term raw profits (no adjusted figures please) — it’s not a total surprise to see the market send the stock lower post earnings.

SmileDirectClub reported third quarter sales surged 50.6% to $180.2 million. Analysts estimated revenue of $165 million. The company’s third quarter loss per share clocked in at 89 cents versus analyst projections of 98 cents a share.

The company’s stock fell about 5% to $10.55 in pre-market trading on Wednesday. SmileDirectClub’s IPO priced at $23 in mid-September.

David Katzman (C), CEO of SmileDirectClub celebrates as the company debuts its IPO outside the Nasdaq MarketSite in New York, U.S. September 12, 2019. REUTERS/Lucas Jackson
David Katzman (C), CEO of SmileDirectClub celebrates as the company debuts its IPO outside the Nasdaq MarketSite in New York, U.S. September 12, 2019. REUTERS/Lucas Jackson

“We are focused on creating long-term value and the business. We think the third quarter was a great quarter, we beat all of our expectations,” SmileDirectClub CFO Kyle Wailes tells Yahoo Finance, adding that SmileDirectClub could be profitable next year, but is more focused on growing the business.

“Profitability for us is a managed outcome, we are balancing growth versus profitability. We are continuing to invest in marketing and sales and other infrastructure,” Wailes added. “For us, we are making that decision. We feel good about the long-term 25% to 30% EBITDA target we put out there long-term, and it will be a steady walk over the next several years ultimately to get there.”

The company’s better than expected quarter extended to its full-year guidance. Full-year sales are seen in a range of $750 million to $755 million. Wall Street was looking for $732 million in sales. SmileDirectClub said its adjusted EBITDA loss will be in the range of $73 million to $80 million. Analysts modeled for an adjusted EBITDA loss of $73 million.

“The stock may open lower on 4Q guide ($196-201 million vs $208 million cons) that came in light, but looks quite conservative to us. Net-net, after a spate of headline noise, we think investor focus should pivot back to SDC's strong underlying fundamentals, re-accelerating 4Q growth, and attractive valuation,” said Jefferies analyst Brandon Couillard.

If SmileDirectClub’s report came one year ago, it’s very likely investors would have cheered. But these are different times (thank you WeWork, Uber, Lyft, etc.). Make no mistake though — SmileDirectClub has strong potential to be a nicely profitable consumer products company. Sooner or later Mr. Market will remember that.