So let's break this down, TOMO beat the analysts' estimates for sales, great! They also matched estimates for profits, awesome! Promised $50 million to $51.5 million in sales next quarter, when Wall Street wanted to hear $52.6 million, DAMN, that's why...
I've been pondering why this stock continues to drop as it does. I mean, all others continue to soar, as did Baidu.com, and soon will 51Job.com. But while TOMO failed to impress the analysts, the company turned in a superb quarter by any objective measure.
Meanwhile, it grew its gross margin 170 basis points year over year, to 39.4%. Although the company didn't come out and say this, I suspect that part of the reason TOM was able to grow its gross was the more rapid growth of its high-margin online advertising business (up 70% year over year) compared with its lower-margin wireless Internet services division (up 36%.) That's no surprise. After all, China's the world's fastest-growing advertising market, and local competitors like Sina.com are also reporting astounding growth in their advertising divisions.
As for the quality of those revenues and the earnings they create, they're simply and consistently superb. One year ago, net earnings under U.S. Generally accepted accounting principles (GAAP) came in at $9.2 million. Cash profits, also known as free cash flow, were even stronger, at $9.3 million. This quarter, GAAP net earnings of $12.1 million were more than backed up by free cash flow of $12.6 million.
I'm still benching on a good growth, which equates to good stock movement. Maybe just not now, we'll see how it goes in the next few weeks. I hear a bull roaring towards this way...