YouGov shares collapse 37%! What’s going on with this AIM stock?

Our writer takes a look at why YouGov shares fell dramatically today and assesses whether this might be a chance for him to snap up this AIM stock.

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The YouGov (LSE: YOU) share price crumbled spectacularly today (20 June), falling as much as 37%. This is a stock I owned a while back but no longer (fortunately, as it turns out).

While the research and data analytics firm is listed on the Alternative Investment Market (AIM), a sub-segment of the London Stock Exchange, it’s hardly a minnow. It had a market-cap of around £1bn before today’s fall, and is widely regarded as a quality growth stock.  

So after this cavernous drop — YouGov’s biggest in 15 years — might this be a chance for me to re-add the stock to my portfolio? Here’s my take.

YouGov to be kidding me

For those unfamiliar, YouGov conducts online surveys and market research to gather insights on various topics including politics, consumer behaviour and social issues. The pollster’s data is valuable for businesses, media and governments, helping them make informed decisions.

Growth has been strong for years, with revenue rising from £117m in FY18 to £258m in FY23. Profits have also trended higher and there’s been a small but fast-growing dividend.

For FY24 though (which ends 31 July), things have taken a turn for the worse. And the culprit for today’s share price collapse was a trading update from the firm saying it had seen lower sales bookings than anticipated in the second half.

Consequently, full-year revenue is now expected to be £324m-£327m, below the consensus for £339m. It noted weakness in Germany, Austria and Switzerland.

Furthermore, its projected £41m-£44m in adjusted operating profit falls significantly short of the £62m consensus estimate.

In a nutshell, YouGov invested for second-half growth that never materialised.

Huge election year

I think the severe reaction here is because full-year guidance was only reaffirmed in March. Back then, CEO Steve Hatch said that “the accelerated sales momentum seen in the second quarter, and our robust sales pipeline….[means] YouGov can achieve growth for the full year in line with current market expectations.”

Just three months later, YouGov’s back with this profit warning. Also, the timing of this announcement might be somewhat surprising. That’s because we’re right in the middle of the UK general election campaigns.

Over in Europe, they’ve also been voting and we’ve got the US elections coming up later this year. Indeed, 2024 is the biggest election year ever as more than half of the world’s population go to the polls.

Given this, investors might assume business would be booming. Then again, its revenue from election polls and surveys is minimal compared to its data analytics business. And companies are cutting back on spending, which is hurting demand for its data products.

My opinion

YouGov had been trading on a lofty price-to-earnings (P/E) multiple in the 30s. And that’s all fine and dandy for growth stocks until profit bombshells drop. Then investors sell first and asks questions later.

My gut feeling here is that the market’s overreacting, as it often does. But back in March, the firm hiked its medium-term revenue guidance to £650m from £500m. We don’t know where this stands now.

I’m going to wait for the full-year results before taking another look. Interestingly though, analysts at Berenberg bank have reaffirmed their Buy rating on the stock, so it might be worth considering.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended 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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