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Why Anaplan Dropped 20% on Wednesday

What happened

Shares of Anaplan (NYSE: PLAN) dropped by 23% on Wednesday morning after the company reported its fiscal third-quarter results. The cloud platform for worker connectivity and performance was down around 17.5% as of 12:16 .m. ET.

So what

After the bell Tuesday, Anaplan released its earnings results for the period ending Oct. 31. Revenue grew 35.2% year over year to $155.3 million, but its GAAP operating loss was $48.2 million, widening from its $35.9 million loss in the prior-year period. The company had a dollar-based net expansion rate of 119% in fiscal Q3, which means that from its existing customers, Anaplan had approximately 19% year-over-year revenue growth.

Image source: Getty Images.

It is tough to pin down exactly what investors were upset with here. The top line looked good, and management actually raised its revenue guidance for the fiscal year from the previously forecast $571.5 million to $573.5 million range to a $583.5 million to $584.5 million range. It's likely the heavy losses that investors are worried about because top-line growth came in better than expected.

Now what

Anaplan has a market cap of $6 billion. Based on its full-year revenue guidance of approximately $584 million, it's trading at a price-to-sales ratio of around 10. That is not cheap. However, if you are interested in this business and think it can continue growing at a solid double-digit percentage rate annually -- and will eventually get to profitability -- then with the stock trading 20% off its highs, now might be the time to buy some shares.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anaplan Inc. The Motley Fool has a disclosure policy.


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