What Happened:
Shares of online payroll and human resource software provider Paycom (NYSE:PAYC) fell 14% in the morning session after the company reported first-quarter results, with revenue guidance for the next quarter falling below analysts' expectations. In addition, its gross margin decreased. On the other hand, it was good to see Paycom beat analysts' billings expectations this quarter. Overall, this was a mixed quarter for Paycom.
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What is the market telling us:
Paycom's shares are somewhat volatile and over the last year have had 4 moves greater than 5%. But moves this big are very rare even for Paycom 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 6 months ago, when the stock dropped 24% on the news that the company reported third quarter revenue that fell short of Wall Street's expectations. In addition, its full-year revenue and adjusted EBITDA guidance, which are more important because markets are forward-looking, were below estimates. The company attributed the weaker growth trend to cannibalization from Beti, its automated payment processing system. While it enhances efficiency, Beti has also led to lower billable services and reduced monetization opportunities. On a positive note, its EPS and adjusted EBITDA beat analysts' expectations during the quarter.
Overall, it was a weaker quarter for the company. Following the results, multiple Wall Street analysts downgraded the stock, signaling that they think the worst may not be behind Paycom yet. For example, Deutsche Bank analyst Bhavin Shah downgraded Paycom from Buy to Hold, adding, "Beti is leading customers to spend less on services and unscheduled payroll runs, which is negatively impacting monetization opportunities for Paycom."
Paycom is down 20% since the beginning of the year, and at $163.86 per share it is trading 55.8% below its 52-week high of $370.78 from July 2023. Investors who bought $1,000 worth of Paycom's shares 5 years ago would now be looking at an investment worth $812.75.
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