Today (October 15th, 2021) $DCT fell by over 24%, which is a large drop for any company. Naturally, you want to know why this happened, so if you are like me, you researched and found that they missed earnings narrowly. Now I know you might be thinking “How does a narrow earnings miss collapse a stock this badly”, well to tell you the truth I don't think it was just about their earnings. I think many people overlooked a key filing with the SEC and I am here to explain exactly what happened with $DCT today.
Obviously, the narrow miss on earnings helped in the decrease in share price today. I am first going to explain what happened in their earnings report, and then move on to another reason, which may have compounded the negative sentiment around $DCT today.
Last night, $DCT reported their quarterly earnings, and peoples first impression was fine, as it appeared to be a decent earnings report that narrowly beat estimates. However, people started digging and found out that their “narrow beat” was actually a “narrow miss” on earnings. This is because their earnings were not calculated according to Generally Accepted Accounting Principles (GAAP), and if they were, the company would have had a quarterly and yearly loss of $0.04 and $0.13 per share during these timeframes (when they reported a quarterly profit of $0.02 per share). Obviously, the news of their miss negatively affected their stock, and caused them to open negatively, however, this miss is very narrow and should have had this much of an effect on their share price.
Duck Creek also reduced their guidance for fiscal year 2022, however they only lowered it approximately 2% below Wall Street Estimates. I could see this having a larger impact on their stock than their earnings figures. However, I still think that this reaction would be considered an overreaction based off of these two factors and that there has to be more to the story.
However, we can see by the reaction to the loss on earnings, and perhaps attempt at covering it up, the stock fell by 18%. This is a lot and the bulk of the drop, however $DCT still dropped 19% between the close of the after-hours (8pm EST) and the first couple minutes of todays trading. This can be explained in my next two sections.
There were a couple of institutions that lowered their price target on $DCT and these each had their own effects on the stock price; however JP Morgan was the first to downgrade $DCT. JP Morgan downgraded $DCT at around 5:30 am (EST) when the pre-market price was $39.80, and within a couple of hours, this price dropped to $38.30 just after 8am (EST). This downgrade initiated a 3.77% decrease in the matter of hours. This drop alone would be considered a lot for a stock. However, just after 8am another bombshell was dropped.
At around 8am this morning (October 15th 2021) Vincent Chippari announced his retirement via an 8-K filing with the SEC reading:
“On October 11, 2021, Vincent Chippari, the Chief Financial Officer of Duck Creek Technologies, Inc. (the “Company”), notified the Company of his intent to retire, effective February 22, 2022. Mr. Chippari's retirement is voluntary and is not the result of any disagreement with the Company. The Company has initiated a review of candidates to replace Mr. Chippari.”
At the time of this announcement, shares of $DCT were trading at $38.30 in the pre-market trading session. However, in the hour and a half between then and their open, $DCT fell to $32.79. The decrease in price between this announcement and open, $DCT stock dropped over 14%.
This retirement may be so significant as they mislead investors in their earnings release, and people found out about it and their net loss. This retirement may have been a chance out of the company for Chippari without having to be fired as a result of misleading and “falsified” financial reporting. At least this is what I make of it, which does not look good for the company, but it had to be done.
Obviously, there is more to this story than many people are showing it to be. This is because there are many people/news outlets who are attributing this decrease to their earnings and nothing else. This is misleading as there was more to this story than meets the eye, and having all of this information is important to help investors and potential investors to understand what they are invested in, and what this drop was truly about.
Overall, I think this was a slight overreaction and that we will see $DCT bounce over the coming couple of weeks. I think that a proper correction to the events that occurred over the past 24 hours would be somewhere in the ballpark of $38.