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CRASH: Why the Prophecy International Holdings Limited share price cratered today

Shares in Prophecy International Holdings Limited (ASX: PRO) plunged 25 cent this morning after the company warned revenues for the six-month period ending December 31 2016 were expected to be just $6 million, compared to $8 million in the prior corresponding period.

This disappointing result was blamed on revenues from its flagship SNARE software system coming in lower-than-expected as Prophecy joins the fast-growing club of tech-wreck companies that have disappointed investors recently. Others to issue disappointing updates recently include Aconex Ltd (ASX: ACX), Newzulu Ltd (ASX: NWZ) and Touchcorp Ltd (ASX: TCH).

Prophecy’s management team also blamed the sharp decline in revenues on weaker-than-expected sales from its eMite analytics and reporting business. In fact for eMite revenues are expected to come in less than $1 million for the half year, compared to $2.6 million for the same period last year in a shock result that is likely to be leading investors to run for the exits today.

Prophecy agreed to acquire eMite in 2015 for a price between $14.3 million to $17.8 million that represented 5.9x FY16’s expected EBIT of $3 million. Given eMite is expected to post less than $1 million in revenues for H1 2017 it looks like Prophecy has been fleeced in this deal, unless it can deliver a big turnaround in eMite’s performance.

For the half year the group now expects total EBITDA of just $1 million and today’s steep share price falls come as no surprise. I would give this business a miss to focus on tech stocks that have heavy insider ownership and consistent track records. Alternative options could be Hansen Technologies Limited (ASX: HSN) or Class Ltd (ASX: CL1) both of which continue to deliver strong operating performance and profit growth.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of TOUCHCORP FPO, Class Ltd, and Hansen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.