LogMeIn Inc. (LOGM), a cloud-based connectivity provider, recently reported its second-quarter results, beating earnings consensus and missing on revenue. The company posted revenue of $257 million, up 208.6% on a year-over-year basis. Analysts were projecting revenue of $265.08 million. EPS came ahead of consensus as earnings grew 106.1% to reach $1.01 per share on a year-over-year basis. However, there are certain red flags associated with the company.
Organic growth is not rosy
It is vital to note the first-half revenue consolidates $267 million from the GoTo acquisition. This indicates organic growth for LogMeIn was around 8.5% during the first half of 2017. Since growth was acquired, the company will not be able to replicate this kind of growth in 2018. As a result, analysts are projecting only 13% top-line growth for fiscal 2018.
Non-GAAP earnings growth was backed by acquisition costs and amortization
Nevertheless, non-GAAP earnings grew to reach $92.5 million in the first half of the year. Non-GAAP earnings were backed by exclusion of high stock-based compensation along with acquisition-related costs and amortization.
High amortization indicates the company acquired considerable intangible assets. Although intangibles entail non-cash expenses, they are among the critical expenses in technology businesses. Therefore, excluding amortization from non-GAAP earnings can distort the company's reported performance.
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