On Monday, Sharecare Inc. (NASDAQ:SHCR) was downgraded from Buy to Neutral by a BTIG analyst following a disappointing fourth-quarter earnings report.
Sharecare, a digital health company, reported a year-over-year decline in revenue of 14.6% to $105.3 million, falling short of both BTIG's and consensus estimates, which stood at $117.3 million and $115 million, respectively. The company's adjusted EBITDA also missed expectations, coming in at $3 million, an 18.3% increase year-over-year but significantly below the anticipated $10.2 million from BTIG and $9.9 million consensus.
The earnings shortfall was attributed primarily to a contract dispute with a major client, which negatively impacted revenue by approximately $14 million and adjusted EBITDA by about $6.2 million for the quarter. The management did not reveal the client's identity or provide details regarding the nature of the dispute. However, according to Sharecare's recently filed 10K, the total adverse financial impact from this disagreement could reach around $50 million over the contract's remaining duration.
"While SHCR may resolve this disagreement, our view is that the probability is high that this money will not be collected, and as a result, Enterprise revenue growth in 2024 will likely be negative, which implies another year of no revenue growth for the entire organization in 2024E," said the analysts.
The company's financial performance has been marked by inconsistency, compounded by the absence of guidance for 2024 and a history of guidance reductions over the past three years.
While there is a possibility that Sharecare might be acquired, as indicated by the announcement of a strategic review process, and the contract dispute could be settled favorably, the analyst's outlook remains cautious due to the ongoing financial challenges faced by the company.
InvestingPro Insights
In light of Sharecare Inc.'s (NASDAQ:SHCR) recent downgrade and financial challenges, real-time data from InvestingPro provides additional context for investors considering the company's stock. The management's aggressive share buyback strategy suggests a confidence in the company's intrinsic value, as indicated by InvestingPro Tips. Additionally, Sharecare holds more cash than debt, which could provide some financial flexibility in challenging times.
InvestingPro Data shows a market capitalization of $275.2 million, highlighting the company's current valuation in the market. The negative P/E ratios for the last twelve months as of Q4 2023, at -2.10 and adjusted at -2.16, reflect the company's lack of profitability in the period. However, the company's gross profit margin stands at a robust 42.83%, which could be a positive sign for its operational efficiency.
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