Why Demandware Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Demandware plummeted more than 12% during intraday trading Wednesday after the digital commerce company reported second-quarter earnings.

So what: For the second quarter, Demandware's non-GAAP net loss widened to $5.1 million, or ($0.17) per share, and total revenue grew 26% to $23.2 million. For those of you keeping track, that actually beat expectations, which called for a loss of $0.21 per share on $22.2 million in sales.

Now what: Going forward, management also noted they exceeded even the top end of their previous revenue range, and so raised their third-quarter guidance. Originally it called for revenue from $23.25 million to $23.75 million, and a non-GAAP net loss in the range of $0.12 to $0.14 per share. For the full year, Demandware now expects revenue between $99.5 million and $100.5 million, with a non-GAAP loss between $0.30 to $0.34 per share.

So what happened? Even though these numbers beat expectations, nobody likes to see red ink on a company's ledger, especially when the bleeding isn't stopping anytime soon. What's more, it probably didn't help that Demandware COO Jeffrey Barnett unloaded 23,333 shares earlier this week -- even though Barnett still owns nearly 84,000 shares, and the group he sold was part of his stock option compensation.

Even so, that didn't stop at least three analysts from upgrading shares of Demandware to "buy" on the weakness, so now could be a great opportunity for patient long-term investors to pick up some shares as the company continues its march toward sustained profitability.

If you're looking for larger, already-profitable options, however, think of just how much of our digital and technological lives are almost entirely shaped by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

The article Why Demandware Shares Dropped originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.