Applied Digital (APLD) dropped nearly 36% on Tuesday after the company’s latest quarterly results fell short of Wall Street’s expectations.
For the fiscal third quarter ending February 28, revenue came in at $52.9 million — up 22% from the same period last year but nearly 18% below the forecasted $64.5 million.
The company posted a loss of $0.08 per share, which was slightly better than the expected $0.10 loss. Operating profits were another story: Applied brought in $10 million from its core business operations, well below the $17 million analysts were looking for.
The biggest red flag for investors was the fact that the company’s main source of revenue — data center hosting — fell 7% year over year to $35.2 million. That’s sowed fears over Applied Digital’s growth prospects.
Its cloud services business didn’t help either. Revenue dropped 36% from the previous quarter to $17.8 million.
The company blamed the slide on changes to how it sells its computing power — moving from long-term contracts to a more flexible, on-demand model. That switch ran into technical problems, which it now says are fixed.
Applied pulls the plug on cloud
On April 10, Applied Digital’s board approved a plan to sell off the company’s cloud services unit.
The company said splitting up its business this way would “better serve the long-term interests of our shareholders,” giving it a chance to zero in on its data center operations.
The long-term goal? To become a real estate investment company focused on renting out server space and to simplify the business while doing it.
Applied Digital has some major backers, including Nvidia, which owns a 3% stake.
In January, the company announced a deal with Macquarie Asset Management that could bring in up to $5 billion in funding. Macquarie already owns 15% of the company’s high-performance computing division.
The first $900 million will help build out Applied’s data center campus in Ellendale, North Dakota. The remaining $4.1 billion could support other projects over the next two and a half years.
The company’s strategy is to lease out this North Dakota site to large tech firms that need massive computing power. But so far, it still hasn’t signed its first client.
“We are confident in the progress we are making and remain committed to delivering sustainable, long-term value for our investors,” CEO Wes Cummins said in a statement.
Applied Digital’s stock is now down nearly 55% for the year.
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