Switch Slips 8% On Lower-Than-Expected 2021 Revenue Outlook

Shares of Switch Inc. were down about 8% in Tuesday’s pre-market trading after the telecommunications company forecasted 2021 revenues that came in below consensus estimates. Meanwhile, Switch reported mixed 4Q results.

Switch’s (SWCH) 4Q earnings of $0.06 per share rose 50% year-over-year and beat the Street’s estimates of $0.05 per share, reflecting higher adjusted EBITDA. Revenues of $127.7 million missed analysts’ expectations of $131.3 million, but grew 6% year-over-year amid strong demand for enterprise hybrid cloud solutions.

The company’s President, Thomas Morton, said, “The fourth quarter was our most productive sales quarter in the history of the company, with our sales team closing over $36 million of incremental annualized revenue bookings.” He added, “During 2020 we continued to see very strong demand from both new and existing customers as we executed over $500 million in total contract value for a second consecutive year.”

However, Switch forecasts 2021 revenues in the range of $540-$555 million, which is lower than analysts’ expectations of $572 million. Notably, the company expects revenues to grow in the second half of the year. (See Switch stock analysis on TipRanks)

Following the guidance miss, BMO Capital analyst Ari Klein lowered the stock’s price target from $21 to $20 (13% upside potential). In a note to investors, the analyst said, “Churn was the leading culprit, but appears isolated. COVID-driven delays to commencements/construction are also a headwind, but we are encouraged by the healthy leasing and increasing backlog adds to visibility.”

Klein maintained a Buy rating and said, “EBITDA margin improvements are expected to carry forward, partially blunting the revenue impact. Shares could trade lower on the guidance shortfall, but we view valuation as attractive and the headwinds as transitory, expecting a better growth trajectory exiting 2021.”

Overall, the rest of the Street has a bullish outlook on the stock with a Strong Buy consensus rating based on 4 unanimous Buys. The average analyst price target of $21.25 implies upside potential of over 20% to current levels. Shares have gained about 24.7% over the past year.

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