Why Shares of eGain Crashed Today

What happened

Shares of eGain (NASDAQ: EGAN) tumbled on Friday after the provider of cloud customer engagement solutions reported disappointing fiscal fourth-quarter results. Revenue came in short of expectations, sending the high-flying stock down 25% by 12:10 p.m. EDT.

So what

eGain reported fourth-quarter revenue of $15.6 million, up 6.6% year over year but about $0.2 million below the average analyst estimate. Recurring revenue jumped 15% to $13.3 million. Within that category, software-as-a-service revenue rose 37% to $9.3 million.

Non-GAAP earnings per share came in at $0.01, down from $0.02 in the prior-year period. eGain CEO Ashu Roy discussed the results and a new initiative to drive sales:

Now what

Shares of eGain have been soaring recently, gaining about 465% in the past year prior to Friday's plunge. As of market close on Thursday, the company was valued at $350 million, nearly 6 times fiscal 2018 revenue. That's not that high of a multiple in the land of high-flying SaaS companies, but it is high considering eGain's minimal overall growth.

eGain is transitioning to a SaaS business model, a move that has paid off for other software companies. Investors have bought into that story over the past year, pushing the stock to great heights. Friday's plunge wasn't the first time the stock crashed amid this transition, and it probably won't be the last.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.