Trying to be a disciplined investor (any system is better than no system, or so they say) I sold at the opening on 7/26, the very next day, and obtained a meager price of only $79.17, basically breaking even on the investment.
From a closing price of $97 on Monday, 7/23, the stock had dropped almost 20 points in less than three trading days.
What happened?On Tuesday, management reported worse-than-expected second-quarter earnings and spooked investors with talk of tough competition.
How bad were the earnings?Earnings before interest, tax, depreciation and amortisation (EBITDA) totaled $263 million, up from $160 million a year earlier but below an average forecast of $269 million given in a Reuters survey of analysts. EBITDA gains of 65% are apparently not strong enough these days.
Pretax profit from continuing operations jumped to $134 million from $75
million a year earlier as the firm boosted its subscriber base by 84 percent to 18 million. Analysts had forecast $143 million pretax profit. The actual pretax profit gain of 79% was not good enough for the analysts who were expecting a 90% gain.
Revenue in the quarter rose to $613 million from $341 million a year earlier, an almost 80% gain. Net profit for Q2 rose to $102 million versus $34 million a year ago. Basic earnings per common share for Q2 came in at $1.01, nearly three times higher than the $0.34 logged in Q2 of 2006.
In spite of the tougher competition, management indicated there would be no impact to margins or growth at this time.