Why the Jumbo Interactive share price dropped 9.5% lower today

The Jumbo Interactive Ltd (ASX:JIN) share price is down 9.5% on Monday. Here's why its shares have been hammered this month…

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In afternoon trade the Jumbo Interactive Ltd (ASX: JIN) share price is the worst performer on the ASX 200 index.

The online lottery ticket seller's shares are down 7% to $14.64 at the time of writing.

At one stage today they had fallen as much as 9.5% to $14.25. When they hit that level, it meant they had lost 49% of their value since peaking at $27.92 in October.

Why is the Jumbo share price sinking lower?

Investors have been selling the company's shares following the release of underwhelming guidance for the first half of FY 2020 last week.

According to the release, Jumbo expects to deliver total transaction value (TTV) of $187.6 million and revenue of $37.8 million in the first half. This represents a 27% and 24% increase, respectively, on the prior corresponding period.

However, on the bottom line things are not expected to be as positive. Over the last couple of years Jumbo has been growing its profits quicker that its revenue thanks to the benefits of scale.

This year it doesn't look likely to be the case, with first half net profit after tax expected to be $14.3 million. This represents growth of just 13% on the prior corresponding period.

Management blamed this slower growth on increased business development activity and one-off costs related to its acquisition of UK lottery manager Gatherwell Limited for $9.1 million.

One positive, though, is that it expects its margin compression to be temporary. Management advised that its underlying EBITDA margin is expected to return to previous levels in FY 2021.

What else has happened?

One broker that wasn't particularly impressed with Jumbo's update was Morgans.

According to a note, it has downgraded its shares to a hold rating from add. It has also slashed the price target on its shares down by 18% to $16.38.

It was surprised by the ramp up in its investment and notes that its guidance falls well short of expectations. And while it sees positives in the decision to invest in its growth, it wasn't enough to keep its add rating on its shares.

Also copping a downgrade today was Event Hospitality and Entertainment Ltd (ASX: EVT). Analysts at Citi downgraded the entertainment company's shares to a neutral rating with a $14.40 price target. This follows concerns over weaker box offices results and softer demand for hotel rooms.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of Event Hospitality & Entertainment. The Motley Fool Australia has recommended Jumbo Interactive Limited. 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 Scott Phillips.

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