Altium (ASX:ALU) shares drop on COVID-19 business update

The Altium (ASX: ALU) share price is down 7% in early trading after giving a business update.

What is Altium?

Altium is an Australian multinational software business that was founded in 1985. It now has offices globally in places like San Diego, New York, Boston, Munich, Shanghai, Tokyo and Sydney. Its software focuses on electronics design systems for 3D PCB design and embedded system development. Its services include Altium Designer, Altium Vault, CircuitStudio, CircuitMaker, TASKING and Octopart.

Altium’s disappointing update

Altium said that while its attractive pricing and extended payment terms to support its customers during COVID-19 are driving strong (subscription) seat growth, its increase in revenue for the full year, while likely to be solid, “will be below latest analyst consensus”.

What are some of the causes of this downbeat announcement?

Altium usually does a lot of its business in the last two weeks of June. However, this June, Altium’s progress has fallen behind current analyst consensus. The company is going to be impacted by the recent lockdown in Beijing and increased COVID-19 infection rates in the US.

Altium has temporarily closed its Beijing office, though staff continue to work at home and close sales.

What did Altium reveal?

Altium is still ‘aggressively’ closing sales with some larger deals still in the pipeline. Seat growth is up 7% on the same period last year. But Altium’s decision to temporarily lower prices for Altium Designer is impacting revenue for the full year.

The software business doesn’t want to lose momentum, but these low subscription prices won’t last forever. New prices will start on 1 July 2020 and full Altium Designer pricing with no extended payment terms will begin on 1 September 2020.

Another update for sales and revenue for FY20 will be given in early July.

Altium CEO Aram Mirkazemi said: “Our strategy to support our customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth and will get us close to or just surpass our key target of 50,000 subscribers. However, we are feeling the revenue impact of this strategy. While we are likely to deliver solid revenue growth this will land marginally behind latest analyst consensus for the full year.”

Summary

I don’t think investors should be too surprised at this. The company had already warned that prices would be lower and this would obviously impact things. Some people may not have been considering more COVID-19 infections in China and the US, but that may have been too optimistic.

After falling in early trade, Altium still isn’t exactly cheap. It was lower during the whole of March and April 2020.

Altium is still a top growth share, but I think there could be an even more attractive price on offer before the end of the year. However, I do still think it could do quite well over the next five years from here.

Disclosure: At the time of writing, Jaz owns shares of Altium, but this could change at any time. 

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