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Why Innodata Stock Crashed Today
Key Points
Innodata shares tumbled 26% after the company abruptly laid off roughly 550 workers in India and the Philippines.
Terminated workers were locked out of company systems and informed that a major business assignment had been scaled down.
The loss of a key project raises immediate revenue concerns ahead of the company's Q3 earnings report in November.
Innodata (NASDAQ:INOD) is having a terrible, horrible, no good, very bad Tuesday. The data engineering and AI services stock plummeted 26.4% as of 12:26 p.m ET after reports of international layoffs hit the news wires, sending investors rushing for the exits.
Pulling the digital plug
On Monday, Innodata reportedly laid off nearly 550 employees in India, alongside an undisclosed number of job cuts in the Philippines. That's more than 5% of the company's workforce. The terminations were executed quickly, with employees losing access to internal systems, laptops, and human resources portals mid-shift. Their dismissals were delivered to personal email addresses because they no longer had access to Innodata's systems.
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According to termination emails reviewed by regional news outlets, the company cited a "ramp-down of the business assignment" as the primary driver for the cuts, rather than individual performance. In other words, a major client unexpectedly pulled the plug on a massive project, and Innodata immediately slashed the overhead costs associated with that work.
Image source: Getty Images.
Revenue concerns weigh on Innodata's valuation
You generally do not execute a mid-shift mass firing unless an important revenue stream dries up instantly. Investors quickly did the math and realized that fewer active projects mean lower incoming revenues and profits. That's unforgivable when the stock trades at a premium valuation. Even now, after the steep correction, Innodata still changes hands at a lofty 27 times forward earnings estimates.
Innodata is scheduled to report third-quarter earnings on Nov. 5, and the market is pricing in the anticipated revenue hit early. The upcoming earnings call should provide clarity on the financial impact of the lost assignment and whether other client contracts are at risk. Until then, expect Innodata's stock to remain in the penalty box.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Innodata. The Motley Fool has a disclosure policy.