Why Cornerstone OnDemand, Inc.'s Shares Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cornerstone OnDemand are trading 8% lower today after starting the day in a 14% hole. Investors are not happy about the software specialist's guidancefor the first quarter of 2015, which was offered during a conference call held after Cornerstone released its fourth-quarter earnings on Wednesday.

So what: Cornerstone's fourth-quarter revenueof $76.4 million exceeded Wall Street's expectations of $74 million, and its adjusted loss of $0.07 per share was as expected. However, trouble arose during Cornerstone's conference call, when executives told their listeners to expect revenue to range from $72 million to $73 million for the first quarter of 2015, with full-year revenue expected to come in at $336 million to $341 million. This will result in a full-year adjusted loss of $0.29 -- first-quarter EPS guidance was not offered.

Wall Street's analysts had modeled $341.6 million in revenue for the year and had been looking for a loss of just $0.14 per share, so Cornerstone's anticipation of deeper losses is certainly causing a lot of consternation on the public markets today. Analysts were also expecting $76.4 million in first-quarter revenue, so Cornerstone's soft top-line guidance for the quarter didn't help matters, either.

Now what: The first question posed during Cornerstone's earnings call Q-and-A session involved currency exchange headwinds, which were mentioned as a reason for the company's soft guidance. Cornerstone will now use a hedging strategy for its currency exchanges, and CEO Adam Miller noted that the company's guidance would be "exactly where the Street['s] was" without the impact of unfavorable currency exchange rates.

It's worth keeping in mind that the midpoint of Cornerstone's full-year top-line guidance still represents a 28% improvement over 2014's result. Cornerstone is also cash-flow positive-- it reported $22 million in free cash flow for 2014, good for a (still-high) price-to-free-cash-flow ratio of 80.5 -- and expects to boost its non-GAAP operating cash flow by $10 million over 2014's result. However, that doesn't mean the company's shares are a good value just yet. I'd keep my distance until this shake-out period (shares are now down 42% over the past year) runs its course on Cornerstone's stock.

The article Why Cornerstone OnDemand, Inc.'s Shares Collapsed originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.