Why Aquantia Stock Dropped a Staggering 23%

What happened

San Jose, Calif.-based Aquantia (NYSE:AQ) stock is down a whopping 23.1% as of 11:15 a.m. EST Wednesday after the company reported fourth-quarter earnings last night — and the reason is pretty obvious.

Expected to earn a $0.01-a-share quarterly profit on Wall Street, this manufacturer of ethernet chips instead reported a $0.09 loss — and a loss of $0.16 when calculated according to GAAP accounting standards. Sales for the quarter — $29.1 million — likewise fell short of analysts’ expectations of $33.6 million.

Red arrow crashing into floor

Aquantia stock came crashing down today. Image source: Getty Images.

So what

Q4 sales actually increased year over year — up 5% — but that was less than analysts had hoped to see. Gross profit margins earned on those sales declined by 4 percentage points to 54%, while operating costs increased significantly, preventing Aquantia from achieving the hoped-for quarterly profit.

Q4 marked both a slowdown from 2018’s overall growth pace and a weakening in the profitability of sales. Full-year sales increased 17% in comparison to 2017 levels, while gross margins averaged 57%. In the end, Aquantia lost $0.29 per diluted share for 2018.

Now what

Granted, that was better than the $0.59 per share that Aquantia lost in 2017, but further improvements could be hard to come by. In its guidance for the first quarter of 2019, Aquantia noted that sales are likely to decline to about $20 million or $21 million, which would be about a 28% fall-off compared to Q1 2018. Gross margins, expected to be just 54.5% or so, likewise look to be weaker than Aquantia scored last year.

Long story short, Q4 was a bad quarter for the company– and things are likely going to get even worse.

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