Why Applied Digital Stock Is Plummeting Today

Applied Digital (NASDAQ: APLD) stock is seeing huge sell-offs Tuesday following the company's recent quarterly report. The data-center specialist's share price was down 28.7% as of 11:30 a.m. ET.

After the market closed yesterday, Applied Digital published results for the third quarter of its current fiscal year, which ended Feb. 28. While the company posted a smaller-than-anticipated loss in the period, sales came in far below the market's expectations.

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Applied Digital sinks on big Q3 sales miss

Applied Digital reported a non-GAAP (generally accepted accounting principles) adjusted loss of $0.08 per share on sales of $52.9 million in fiscal Q3. For comparison, the average analyst estimate had expected the business to post a loss of $0.10 per share on revenue of roughly $62.9 million.

While sales still increased roughly 22% year over year in the period, the performance was far weaker than anticipated. Notably, the company's data center hosting business actually saw sales decline 7% year over year to $35.2 million.

What's next for Applied Digital?

With Applied Digital's data center hosting business representing its largest sales segment and posting a mid-single-digit decline in fiscal Q3, the company's near-term growth outlook now appears significantly weaker. Meanwhile, management said that it was considering strategic options for its cloud services business in order to reduce customer friction and move the company's overall structure closer to being a real estate investment trust (REIT) focused on data centers.

For reference, the company's cloud services business posted sales of $17.8 million in fiscal Q3 -- up from $5.6 million in last year's quarter. With Applied Digital potentially looking to sell or spin off its cloud services unit and its core data center hosting business posting sales declines, it's not surprising that investors are having a strong negative reaction to yesterday's earnings report.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.