Shares of Paycom Software (ticker: PAYC) took a nosedive following a guidance slash, leading several Wall Street firms to revise their recommendations on the company. In premarket trading on Wednesday, Paycom stock plummeted 38% to $151.40.
Despite beating expectations with its third-quarter adjusted earnings, Paycom reported revenue that fell short of predictions. Additionally, the company’s fourth-quarter guidance was below consensus. For the full year, Paycom expects revenue in the range of $1.68 billion to $1.684 billion, which is lower than analysts’ estimates of $1.714 billion. This is also a decline from the prior forecast of $1.715 billion to $1.717 billion.
Adjusted earnings before interest, tax, depreciation, and amortization are now projected to be between $712 million and $717 million, compared to the previous range of $722 million to $724 million. Analysts had anticipated earnings of $723.3 million.
One factor contributing to the lowered guidance is Beti, a new payroll system for employees that prevents billable errors. William Blair analysts, led by Matthew Pfau, downgraded Paycom’s stock rating to Market Perform from Outperform, attributing the decrease to Beti’s impact. Despite short-term revenue growth concerns, management believes that Beti will provide long-term value to clients and help the company gain additional market share.
Oppenheimer analysts, led by Brian Schwartz, revised their rating on Paycom stock to Perform from Outperform and removed their $400 price target due to concerns about growth. Mizuho analysts maintained a Neutral rating but lowered their price target from $325 to $185.
It remains to be seen how Paycom will weather these challenges in the face of lowered guidance.