Why Bandwidth (BAND) Shares Are Getting Obliterated Today

Kayode Omotosho /
2024/06/14 10:42 am EDT

What Happened:

Shares of communications platform-as-a-service company Bandwidth (NASDAQ: BAND) fell 15.5% in the morning session after Morgan Stanley analyst Meta Marshall downgraded the stock’s rating from Equal-weight (Hold) to Underweight (Sell) and lowered the price target from $18 to $15. 

The analyst cited some of the reasons for the downgrade, noting, "BAND's exposure to domestic election cycles has typically resulted in decelerating growth the following year." Marshall added, “We still expect headline revenue upside in '24 on the election cycle, but the majority of growth attributable to pass-through surcharges is captured in 25%+ YTD run in shares.” 

Marshall is largely negative on communications software as a whole and expressed this through additional downgrades of TWLO and EGHT.

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What is the market telling us:

Bandwidth's shares are very volatile and over the last year have had 40 moves greater than 5%. But moves this big are very rare even for Bandwidth and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was about a month ago, when the stock gained 19.2% on the news that the company reported a "beat and raise" quarter. Specifically, it was great to see Bandwidth's optimistic revenue guidance for the next quarter, which exceeded analysts' expectations. Full-year revenue guidance was raised. Its revenue, adjusted EBITDA, and EPS also outperformed Wall Street's estimates during the quarter. Overall, we think this was a strong quarter that should satisfy shareholders.

Bandwidth is up 12.9% since the beginning of the year, but at $16.06 per share it is still trading 28.8% below its 52-week high of $22.54 from May 2024. Investors who bought $1,000 worth of Bandwidth's shares 5 years ago would now be looking at an investment worth $208.70.

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