ChannelAdvisor shares plummet 54%

ChannelAdvisor shares plunged 54 percent Tuesday as a wave of analysts downgraded their ratings on the stock after the e-commerce technology company cautioned investors that fourth-quarter revenue would be disappointing.

Bloomberg News reported that seven analysts lowered their ratings on the stock either late Monday or Tuesday.

After the markets closed Monday, the Morrisville-based company reported that, based on preliminary results, revenue for the fourth quarter will be about $23.7 million, which would be about 16 percent higher than a year ago. The company previously projected that its revenue would range between $25.6 million and $26.1 million.

Although the dollar volume of online sales processed by ChannelAdvisor’s platform rose a robust 31 percent, the company’s revenue was hurt by a shift by consumers to larger online retailers. Larger retailers get a volume discount.

In addition, revenue was depressed by retailers opting for new contracts that call for higher minimum sales volume. That affects revenue because customers typically pay a fixed fee on the minimum sales volume anticipated by their contracts plus additional fees, at a higher rate, for sales that exceed that amount.

But David Spitz, the company’s president and chief operating officer, told analysts during a conference call that when customers upgrade their sales volume tier, their contracts also are extended by 12 months. That, he added, increases ChannelAdvisor’s “visibility” on future revenue.

ChannelAdvisor’s cloud-based software enables retailers to integrate and manage online sales across a multitude of sales channels. Retailers also use its software to automatically advertise products on search engines such as Google and Yahoo and to promote products on Facebook.

Analyst Colin Sebastian of Robert W. Baird & Co. called the disappointing revenue “a yellow flag.” He downgraded the stock to “neutral” from “outperform.”

With regard to the shift towards higher-volume customers, Sebastian wrote in a research note that “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.”

BMO Capital Markets analyst Joel Fishbein Jr. wrote in a research note that although he wasn’t changing his “market perform” rating on the stock, “we expect shares to be under pressure until investors gain further clarity on the underlying growth and profitability of the business.”

Fishbein also noted that, during a conference call late Monday, ChannelAdvisor executives noted that operating expenses were lower than planned in the quarter “and this should partially offset the negative impact to adjusted EBITDA,” or earnings before interest, taxes, depreciation and amortization.

John Baule, ChannelAdvisor’s chief financial officer, told analysts that the company would revisit its pricing structure.

“We want to make sure that we’re getting the value we should get from customers who clearly are letting a lot of value from our platform,” Baule said.

ChannelAdvisor plans to release its complete fourth-quarter results on Thursday, Feb. 5.

ChannelAdvisor shares closed Tuesday at $9.83, down $11.32. That’s a far cry from its 52-week high, recorded in March, of $48.95.

ChannelAdvisor went public at $14 a share in May 2013.

This story was originally published January 13, 2015 at 11:33 AM with the headline "ChannelAdvisor shares plummet 54%."