Investor Destination

Why Seagate Stock Plunged Today?

What happened?

Shares of Seagate Technology (NASDAQ: STX) plunged today after it announced its fourth-quarter results. It met its guidance and generated $2.53B in revenue and non-GAAP EPS of $1.20.

Why?

The company expects lower revenue in the next quarter and mentions limited visibility in the near term. It is blaming macro uncertainties caused by the pandemic for that.

Overnight the pandemic has forced the world into working and learning from home. Companies and educational institutes have scrambled to accommodate this transition, fueling a storage demand from cloud service and content providers. Seagate benefited from that and saw strong demand for its mass capacity storage products. However, the pandemic is negatively impacting the global economy, and many economists predict that global GDP will sharply contract this year to levels not seen in six decades. Many mid and small sized enterprises, as well as municipalities, have slashed their IT budgets. Due to economic uncertainties, consumers are curtailing their spending. So the company is facing lower demand for its legacy products in certain end markets and expects short-term challenges.

Now what?

The recent stock market rally has decoupled from the economy. Earnings are reminding investors about the current economic uncertainties.

Seagate has a strong balance sheet and pays dividends. While there are short-term challenges, the long-term demand for data is undeniable. The company has been innovating and has strengthened its mass capacity storage product portfolio. In recent years, the company has seen strong demand for its mass capacity storage products. The remote economy has further ignited the demand for its new product line.

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