Here's Why NIC Inc. Is Plunging Today

By Brian Feroldi Markets Fool.com

Image source: Getty Images.

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What happened

After the company reported fourth-quarter results and provided investors with guidance for 2017, shares of NIC (NASDAQ: EGOV), a company focused on digitizing government services, fell by 12% as of 3:30 p.m. EST on Thursday.

So what

The headline numbers from NIC's fourth quarter report looked solid:

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$78.3 million

$71.6 million

9.4%

Net income

$13.6 million

$9.0 million

51.1%

Earnings per share

$0.20

$0.13

53.8%

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Data source: NIC.

By comparison, Wall Street was only expecting NIC to produce $76.1 million in total revenue and show $0.14 in EPS, so the company beat its estimates on both metrics.

However, the markets appear to be reacting negatively to the company's guidance for 2017. NIC's management team said that they will be increasing spending levels in an effort to build out the company's product offering.

As a result, management provided investors with the following guidance:

Metric

2017 Forecast

2016 Actual

Year-Over-Year Change at Midpoint

Revenue

$323 million to $333 million

$318 million

3%

Earnings per share

$0.69 to $0.72

$0.84

(16.1%)

For perspective, Wall Street was expecting the company to forecast more than $337 million in revenue for the full year and show EPS of at least $0.77 on the bottom line.

The disappointing guidance appears to be the primary reason behind the sell-off today.

Now what

While the investments are expected to cause near-term profits to wane, management was quite confident that they will produce strong results for shareholders over time.

Here's CFO Steve Kovzan commenting on the increased spending plans:

While these investments will dilute our earnings in the short term, they set the stage for higher growth in 2018 and beyond. We remain unwavering in our long-term focus, which has benefited NIC, our partners, and our stockholders well over the years.

NIC's strong quarterly results showed that it is quite adept at creating products that government agencies are willing to pay for. If the company's planned investments can drive increased adoption and reduce churn, then shareholders will likely be rewarded for holding.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends NIC. The Motley Fool has a disclosure policy.