Shares of Envivio Inc ENVI.O lost more than half their value on Tuesday after the video delivery company slashed its revenue outlook for the second quarter, citing weak spending by telecom and cable companies in North America and Western Europe.
Shares of the company fell to their lowest levels to touch $2.59, down 54.5 percent on Tuesday, making it the top percentage loser on the Nasdaq.
At least two brokerages cut their rating on Envivio's stock, citing the size of the revenue estimate cut.
While weak carrier spending patterns have been evident in most markets since late last year, it is unclear how the spending environment for Envivio's product changed so much since the company went public in April, Deutsche Bank analyst Jonathan Goldberg wrote in a note.
Telecom carrier spending particularly in Europe and North America accounted for 74 percent of Envivio's revenue in the first quarter, he said.
"We believe the shortfall is not a one-time event nor the result of a single contract getting delayed. As such, we think the company's problems will persist into following quarters," Goldberg said.
He cut his rating on the stock to "hold" from "buy" and price target to $4 from $12.
Analysts at both Stifel Nicolaus and Goldman Sachs said the company may be losing ground to rival Harmonic Inc's (HLIT.O) video processing technologies.
While Envivio had outgrown Harmonic in the prior five quarters, there was a sharp divergence in the second quarter, with Harmonic noting a record backlog and 25 new customers for its over-the-top services, Goldman analyst Simona Jankowski said.
Stifel's Sanjiv Wadhwani also said Harmonic was becoming more of a competitive force in the market.
Over-the-top video is provided over the internet rather than via a service provider's own dedicated, managed IPTV network.
Harmonic reported lower-than-expected quarterly results in July due to weakness in Europe but said demand rose in the United States.
Goldman Sachs cut Envivio to "neutral" from "buy" and dropped it from its Americas Buy List, while Stifel halved its price target on the stock to $6.
Envivio, whose customers include cable companies, cut its second-quarter revenue outlook to between $10 million and $11 million, from its earlier forecast of between $17 million and $18 million.
Shares of the South San Francisco-based company, with a market value of $153.4 million as of Monday close, have fallen by a third since going public in April this year.
Envivio will report results on September 6.
(Reporting by Megha Mandavia and Sruthi Ramakrishnan in Bangalore; Editing by Sriraj Kalluvila and Anil D'Silva)