Cricut (NASDAQ: CRCT) is a story linked to the pandemic. Its IPO came a year after the pandemic began, and the first year of growth was driven by social distancing, stay-at-home-activity, and pandemic spending. We're talking about a craft and crafting company, so demand was spectacularly high. Once the peak was hit and the COVID bubble burst, supply chain hiccups and efforts to mitigate them led to our current problem.
The company issued a mixed report sending shares moving lower today, but the results are due to issues within the economy, not core business, and not the demand for the product. Systemic supply-chain overload had retailers and outlets overstocked, but that situation is changing, and the user count has grown substantially. This has the company set up for leverage, which could be seen in the results as soon as the current quarter.
“We entered 2022 expecting to deliver much better financial results. Our results reflect the challenging macroeconomic conditions throughout the year and pressure from excess channel inventory that impacted revenue from Connected Machines and Accessories and Materials. Despite this, we ended the year with healthy growth in new users and paid subscribers,” said Ashish Arora, Chief Executive Officer of Cricut.
Cricut Falls Flat On Mixed Results
Cricut’s Q4 results are down YOY and mixed regarding the analysts' estimates, but for each bit of bad news, there is good news to offset it. The revenue of $280.76 million is down nearly 28% from last year, but this is versus a record-setting pandemic-inspired comp and 760 bps better than expected. On a segment basis, Connected Machines and Accessories & Materials contracted by subscriber counts grew by 27% for the quarter and user count by 28% for the year.
On the bottom line, the GAAP EPS missed by a penny but is flat compared to last year due to an increase in the gross margin. The gross margin improved by 280 basis points for the quarter, and further margin improvement is expected.
“We also entered 2023 with healthier channel inventory levels, which more directly links Connected Machine revenue to consumer demand. We will continue to take a conservative planning approach in 2023 while managing for small, incremental operating margin improvement and healthy cash flow. We have a proven model with a significant opportunity to drive incremental margin expansion over the long-term,” said Kimball Shill, Chief Financial Officer of Cricut.
Analysts Notice Cricut After Long Pause
The analyst activity in Cricut is sparse, but a few are covering the stock. The last report to come out until now was in October 2022, so the new price target from Citigroup is noteworthy. Citigroup maintained its Neutral rating on the stock but upped the price target to $9.50, which assumes about 5% of the upside for the stock. This compares favorably to the last activity, a series of downgrades and price target reductions, with the Marketbeat.com consensus estimate about 7% below the current price action.
Cricut shares started to sell off before the earnings report was released, and the post-release action is bearish, but it also looks like a bottom is in play. The market appears to be supported in the $8.50 region; the consolidation may continue if it can hold up here. This company needs to produce better results in the long term, but that could happen starting with the current quarter. When it does, more analysts may flock to the name and help drive it higher again.