What happened
Lizhi (NASDAQ: LIZI) shareholders lost ground to the market on Tuesday, with the stock dropping 10% by 3:15 p.m. EDT, according to data provided by S&P Global Market Intelligence. The audio platform specialist sank after reporting its latest earnings results.
Image source: Getty Images.
So what
The Chinese tech producer revealed solid sales growth for the period that ended in late June. A 7% uptick in paying users, along with higher average spending, helped push revenue up 59%. Management highlighted other key wins in the second quarter, including a big boost in gross profit margin. "We are very pleased to continue our strong growth momentum," CEO Marco Lai said in a press release.
Yet Wall Street chose to focus instead on some financial concerns about the business. These include net losses due to an aggressive growth strategy, and a rising share count. Lizhi needs cash from these sources to fund major growth initiatives, including a push into higher quality audio content for its platforms.
Now what
CFO Chengfang Lu said that Lizhi is aiming for sustainable long-term growth. Yet it's clear from sharply rising expenses that the company is prioritizing revenue gains over profitability for now.
That's the right strategy for the small-cap business, but one that could spur more stock price swings ahead. Wall Street doesn't have a clear picture into Lizhi's ability to use the funds it is raising through stock offerings to increase shareholder value. Until that big question is answered, shareholders should expect continued volatility for this stock.
10 stocks we like better than Lizhi Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Lizhi Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 9, 2021
Demitri Kalogeropoulos 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
