Update: Carbonite Earnings

Aug. 8.14 | About: Carbonite Inc. (CARB)

Summary

The company beat expectations on the top and bottom lines, but shares are on the fall.

The earnings release confirms our thesis that the switch to small businesses is a positive.

We expected the company to start beating expectations as Wall Street was misunderstanding the company’s new strategy.

Carbonite (NASDAQ:CARB) managed to beat 2Q earnings, but over the last month shares have tumbled 16%. EPS came in at a $0.03 loss, beating consensus of a $0.04 loss. Revenues also marginally beat, but grew 16% y/y and bookings were up 12% y/y. However, the company guided for full year 2014 EPS to come in between a $0.02 loss and a $0.06 loss. Consensus was for a $0.02 loss.

After the recent selloff, shares are up just 7% since our February article. We still have a $12 to $15 price target on the company. This comes as the company will continue to make the shift from products and services for consumers to small businesses. As we noted,

Carbonite's transition to an SMB-focused company has already begun, and many investors might be missing the fact that despite the near-term setbacks with respect to consumer backup growth and increased marketing spend, Carbonite has the potential to beat expectations in the long-term as it tackles the higher-growth, higher-margin, SMB market.

The 2Q also showed progress in this area. The company noted that its sales were strong in its Carbonite Server Backup product and newly released Carbonite HT10 appliance. These products are resonating nicely with small businesses.

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