Why Shares of Houghton Mifflin Harcourt Co. Plunged Today

Image source: Houghton Mifflin Harcourt.

What happened

Shares of educational content and services company Houghton Mifflin Harcourt (NASDAQ: HMHC) tumbled on Thursday following a disappointing third-quarter report. HMH missed analyst estimates for revenue and earnings by a wide margin, sending the stock down 22% by 11 a.m. EDT.

So what

HMH reported third-quarter revenue of $533 million, down 7.4% year over year and about $50 million below the average analyst estimate. Billings decreased 9% year over year to $620 million, with the company pointing to a smaller new adoption market, lower market share, and lower delivered professional services revenue as the main drivers of the decline.

Earnings per share came in at $0.73, down from $0.94 in the prior-year period and $0.15 short of analyst expectations. Lower revenue was the main reason for the earnings decline, but a lower income tax benefit compared to the same period last year also contributed.

HMH Interim CEO Gordon Crovitz discussed how the company plans to return to growth:

Now what

Due to HMH's poor third-quarter performance, the company lowered its outlook for 2016. It now expects to produce revenue between $1.32 billion and $1.38 billion, down from a previous range of $1.485 billion to $1.555 billion. Billings are now expected to come in between $1.37 billion and $1.43 billion, down from a previous range of $1.525 billion to $1.595 billion.

It was a rough quarter for HMH, and its guidance doesn't suggest that things will get better anytime soon. Investors are right to be concerned following a big miss and slashed guidance, and the steep drop in the stock price on Thursday may be just the beginning if the company can't turn things around.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Timothy Green 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.