Cricut Fails To Impress The Market And Shares Go On Sale

Analysts Cut Their Ratings On Cricut 

Cricut NASDAQ: CRCT is an exciting growth story with plenty of pandemic tailwinds behind it. The company makes a line of IoT-connected crafting machines that is complimented by a robust subscription service and materials business as well. The problem with share prices, however, lay in the fact that growth is slowing, coming in below estimates, and margins are tightening. The long-term outlook is intact, say the analysts, but the near-term headwinds are here for the foreseeable future and they might be growing. The company’s sales of machines fell on a YOY basis which points to not only slowing but a plateau in business that could linger for several quarters or longer. 

The analysts see value in the stock but their sentiment is waning. At least three of the five sell-side analysts covering the stock have come out with commentary since the Q4 earnings report was released and all three contain price reduction, a downgrade, or both. Robert W Baird downgraded the stock to Neutral from Overweight and lowered the price target from $38 to $13 which is quite a cut. The other two analysts already had the stock rated at Underweight, they lowered their targets to $7 and $9 compared to the $17.20 Marketbeat.com consensus. In our view, it’s only a matter of time before the other ratings on the stock are cut and their price targets reduced. 

Cricut Fails To Impress The Market 

Cricut had a good quarter and grew revenue both sequentially and versus last year but the growth was well below the analyst's estimates. The $387.8 million in revenue is a company record and up 20% from last year but fell short of the mark by 500 basis points. The revenue was driven by a 51% increase in subscriptions coupled with a 7% increase in materials offset by a 7% decline in machine sales. The gains in subscriptions is great but the segment represents only 15% of the net while the core connected machines segment commands a much larger 40% of sales. 

The company’s cash machine is the materials segment but growth in that department will be hampered by slowing machine sales in the coming quarters. The international segment, the company’s key growth avenue, grew 53% over last year and is worth 14% of the revenue or 200 basis points worth of expansion. The problem for the market, however, is in the earnings which came in far below the consensus. The GAAP EPS of $0.05 missed the consensus by $0.19 due to a variety of factors that included share-based compensation and the negative impacts of inflation. 

The company does not give guidance but a few things are clear. The business has made some strong gains over the past two years and they appear to be sticking. At the same time, the tailwinds driving business have slowed and that is seen in the machine sales. While growth is present and expected the results are below expectations and more than suggest relative weakness will persist for the foreseeable future. 

The Technical Outlook: Cricut Falls To An All-Time Low 

Price action in Cricut fell to an all-time low following the Q4 report and may fall further. The action is showing some signs of support but the bounce is weak and near the low of the movement. While price action may continue to bounce in the near term, we expect to see resistance cap prices at the short-term moving average if not lower. The top of the Open Window at $14 is a sure level for support to be found, the question is how strong will it be?