Why Evolv Technology Stock Plunged 45.8% on Tuesday

What happened 

Shares of Evolv Technology (NASDAQ:EVLV) plunged as much as 45.8% in trading on Tuesday after the security company reported fourth-quarter financial results. Shares closed the day down 43.1%. 

So what 

Total revenue for the fourth quarter of 2021 was $6.8 million, up 236% from a year earlier, and orders booked jumped 201% to $17.9 million. Net income for the quarter was $2.5 million, or $0.02 per share. But for the full year, revenue was $23.7 million and net loss was $10.9 million, or $0.15 per share.

What was so disappointing was guidance. Management said revenue will be $29 million to $31 million in 2022 but operating loss will be $82 million to $84 million. The good news is that annualized recurring revenue is expected to be $27 million to $28 million as the company transitions to a subscription-based revenue model. 

Now what 

Companies who have tried to shift from up-front sales to a subscription-based model have had challenges making the move for years. We're seeing that at Evolv because the company still needs to spend up front on product development and sales and marketing but may not see payback on that investment for years. 

The good news is that Evolv has $307.5 million in cash on the balance sheet and expects to have over $220 million in cash at the end of this year. That should be enough of a cushion to keep the transition to subscriptions going, but it's clear that revenue needs to increase quickly to get to breakeven. Investors have more questions about that transition today, and it's worth waiting to see if Evolv can get operations to cash flow positive before diving into the stock. 

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