Nitro Software shares in freefall as recurring revenue growth runs out of steam

Nitro Software (ASX: NTO) serves as a reminder that no tech company is safe from disappointing earnings, even if its share price is down more than -50% from previous highs.

The revised FY22 guidance on Tuesday appeared to be rather innocent at first glance, upgrading loss expectations but downgrading annual recurring revenues (ARR).

"Added ARR from new sales was below internal expectations as sales cycles lengthened and customers delayed purchases given the uncertain macroeconomic environment," Nitro said in a statement on Tuesday.

Table: Market Index, Source: Nitro Software

Top-line matters

At face value, the upgraded loss expectations sounds like a good thing, amid a go-to-market restructure that'll lower costs, increase efficiency and accelerate a return to cashflow breakeven.

However, the sharp downward re-rate would suggest the market is more focused on the company's top-line and ability to growth market share.

On a side note, Nitro said that its compound average growth rate for revenue since the first-half of 2020 sits at 31% (including acquisitions). Though, the figure fails to acknowledge that its shares on issue have increase by around 23% from 195m to 240m over the same period - muting revenue growth on a per share basis.

Selling frenzy

Nitro shares tumbled -15% as the market opened, with selling momentum pushing its shares even lower, down -27% at noon.

The freefall comes off the back of massive volumes of 7.4m shares traded at 12:30 pm AEST, compared to 20-day averages of around 540,000.

Nitro Software share price chart