Ooma Q1 Disappoints, Credit Suisse Downgrades Until Execution Improves

Shares of Ooma Inc OOMA, a provider of voice-over-IP calling, plummeted more than 28 percent after the company's first-quarter earnings report and forward looking guidance failed to impress investors and analysts.

One analyst that was unimpressed by the report is Credit Suisse's Michael Nemeroff, who downgraded Ooma's stock from Outperform to Neutral with a price target lowered from $16 to $12.

According to Nemeroff, Ooma's first-quarter report was "disappointing" but the company's revised growth guidance of 9.5 percent year-over-year at the midpoint is notably short of the Street's expectation of 17.2 percent. Moreover, the $8 million top-line reduction in estimates was attributed to increased competition from much larger companies, including Google.

Office Strength Not Enough

On the positive end, Nemeroff noted that Ooma Office continues to outperform with a 63 percent year-over-year subscription revenue growth. However, the Office business represents approximately 20 percent of total revenue and isn't large enough to offset under-performance elsewhere in the company.

Looking forward, Nemeroff lowered his fiscal 2018 revenue estimate from $122.5 million to $114.5 million but left his $0.11 per share loss unchanged.

Bottom line, Nemeroff believes the potential for increased competition implies he is moving to the sidelines until Ooma Office can become a "more meaningful driver of growth" and this won't be seen for at least several quarters.

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