Why did the YouGov share price just crash 37%?

The YouGov share price has been weak for a while. But that’s nothing compared to what happened after this profit warning.

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The YouGov (LSE: YOU) share price plunged 37% in morning trading on 20 June. That’s what a profit warning can do.

The company now expects full-year revenue of around £324-327m. Adjusted operating profit should be £41-44m, down from £48.3m last year.

That’s quite a miss, for a popular growth stock.

The company has “seen lower sales bookings than anticipated.” It added that “sales in our Data Products division have remained slow and we continue to see declines in fast-turnaround research services.

Future plans

The board told us that, as we head for 2025, it “will focus on optimising our cost base and prioritising investment in key growth areas such as upgrading our Data Products, continuing to build out our AI capabilities and enhancing our sales organisation to further capitalise on YouGov’s unique asset: its high-quality global panel and proprietary dataset“.

That rings a couple of alarm bells for me, not just about YouGov.

AI boom

AI? That’s a big growth star these days. And I fear things might get close to the dotcom bubble of 1999.

Back then, it was e-anything, or any talk of online, and jam-tomorrow investors piled in. Is AI the new e-commerce bubble?

AI does get people jumping aboard now. Look at Nvidia, which just soared past Apple and Microsoft to become the biggest company in the world. Its market cap is over $3.3trn. Yes, trillion.

YouGov isn’t on the same kind of ride, but it shows something that’s been common over the decades. When a popular trend stock fails to hit its targets, thump! The share price can crash down.

Costs

And I don’t like that bit about “optimising our cost base” too much, for a couple of reasons. One, and it gets me every time I read something like this, shouldn’t a company always strive to optimise its cost base?

And it’s a discouraging thing to hear from a company like this, when future growth depends on today’s capital expenditure.

So, does this mean I’d avoid YouGov shares like the plague?

No. Quite the opposite, in fact. I think we could be looking at a nice buying opportunity. I’d been watching YouGov since the heights of 2021, when it got a bit hot. It’s been steadily falling since.

Forecasts

Analysts saw soaring earnings for the next couple of years. They’ll mark those down a bit now, I expect. But today’s price crash drops the forecast P/E for 2026 to just 10. I reckon the earnings outlook could be pared back a fair bit, and still leave the stock looking cheap.

The main risk I see now could be a long spell in the dumps. When a growth champion turns pariah, it can be a long time before investors come back to it.

And profit warnings have a habit of coming in multiples.

So, I might wait until I see how 2024-25 starts to shape up. But the temptation is strong.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Microsoft, Nvidia, and YouGov Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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