Wisetech shares tumble on FY25 earnings downgrade – But dip buyers step in to cushion selloff

Wisetech (ASX: WTC) shares plunged 18% as the market opened on Friday after the logistics software company downgraded its FY25 guidance. The company cited "distractions from recent media attention" and organisational restructuring as key factors.

By the numbers

• "Commercial launch of Container Transport Optimisation has been delayed and pushed back to the second-half of FY25, resulting in a delay to anticipated revenue."

• FY25 revenue guidance cut to $1.2-1.3bn, previously guided to $1.3-1.35bn revenue

• FY25 EBITDA guidance lowered to $600-660m, previously guided to $660-700m EBITDA

• FY25 EBITDA margin expected to be 50-51%

At the midpoint, the new revenue and EBITDA guidance represents a 5.6% and 7.3% cut to the company's prior guidance.

The context: This announcement follows a turbulent period for Wisetech shares, which experienced a dramatic V-shaped recovery after October's selloff sparked by allegations regarding CEO Richard White's personal life. Despite falling 26% between October 15-24, the stock had rebounded approximately 40% to reach record highs. With a price-to-earnings ratio of 175 and strong growth expectations, the earnings downgrade has raised concerns. To add some perspective, here's what Morgan Stanley analysts expected for FY25 (as at 24 October 2024).

• FY25 revenue of $1.34bn

• FY25 EBITDA of $689.7m

• FY25 EBITDA margin of 51.1%

• "We make no changes to our forecasts or earnings estimates. We continue to believe the risk to consensus FY25-26 estimates is skewed more to the upside."

The new guidance falls short of these projections, with revenue and EBITDA now 6.7% and 8.6% below Morgan Stanley's estimates, likely prompting analysts to lower earnings forecasts and target prices.

Share price performance: Before the recent volatility, Wisetech had posted impressive gains of around 83% year-to-date. Although the stock opened 18% lower on Friday, it had recovered to a 11.9% loss by 10:35 am AEDT.

Wisetech price chart (Source: TradingView)

Food for thought: Historically, Wisetech has built a strong reputation for not just meeting but often exceeding earnings expectations and regularly upgrading guidance. While today's downgrade is significant, it's worth noting that the primary drivers are specific and potentially temporary: The delayed launch of the Container Transport Optimisation product and organisational restructuring disruptions. In the coming days, investors should monitor:

• Analyst Sentiment: Morgan Stanley's recent bullish stance, suggesting upside potential to FY25-26 consensus estimates, now faces a stark contrast with today's downgrade. The key question is whether analysts will maintain their overall positive outlook while adjusting target prices, or if this update signals a broader shift in market confidence.

• Long-term Outlook: While near-term earnings forecasts for FY25-26 will likely see downward revisions, the more crucial factor is whether analysts view this as a temporary setback or a sign of deeper challenges. Any changes to medium-term projections could significantly impact Wisetech's valuation and market positioning.

• Market Response: The initial sharp decline has already shown signs of moderation, with buyers stepping in at lower levels. The sustainability of this dip-buying behavior over the coming sessions will provide important insights into investor confidence and the stock's near-term direction.