Aurora Cannabis (NYSE:ACB) stock surged on Thursday before its earnings release. The company released its results for the third quarter of fiscal 2020 after the market closed. The third-quarter results surprised everyone with the revenue beating the estimates. However, the EBITDA losses continued in the third quarter. The stock closed 14.4% higher at $6.64 on the NYSE. Aurora Cannabis also closed 10.9% higher at 9.2 Canadian dollars on the Toronto Stock Exchange. In pre-market trading today, the stock has risen 16.9%. Let’s take a look at how the third-quarter results influence the stock price.
Aurora Cannabis’s revenue beat Q3 estimates
Aurora Cannabis’s management stated that its business saw less of an impact from COVID-19 in the third quarter. Cannabis is an essential item amid the pandemic in Canada, Europe, and some US states. The designation boosted the company’s sales. The third-quarter revenue was 78.4 million Canadian dollars, which beat analysts’ estimate of 66.6 million Canadian dollars. The revenue rose 20.3% YoY (year-over-year). Sequentially, the revenue rose from 56.0 million Canadian dollars in the second quarter of fiscal 2020. Aurora Cannabis saw cannabis net revenue of 41.5 million Canadian dollars in the third quarter, which included Cannabis 2.0 sales from December 2019. Also, the company’s Daily Special, which launched in February, contributed to the revenue growth.
Aurora Cannabis’s medical revenue was 31.1 million Canadian dollars. The revenue included 27.0 million Canadian dollars from Canada and 4.0 million Canadian dollars from international medical cannabis sales. The company’s international medical cannabis sales in Europe resumed after the permit issue in Germany got resolved.
However, Aurora Cannabis has a long way to go before it reaches positive profitability. The company reported an EBITDA loss of 50.8 Canadian dollars. The loss was lower than in the second quarter. Notably, the amount was higher than an estimate of 40.1 Canadian dollars. A higher SG&A expense of 75.1 million Canadian dollars contributed to the EBITDA loss.
Aurora Cannabis’s cash position after Q3
The company’s capital expenditures were 73.7 million Canadian dollars in the third quarter, which was lower than the previous quarter. Overall, Aurora Cannabis canceled many projects in the third quarter. The company decreased its cash use by 118 million Canadian dollars in the third quarter. The company expects to reduce its cash use more in the fourth quarter. Aurora Cannabis stated that its consolidated cash position was 230 million Canadian dollars as of March 31, 2020.
Besides the reverse stock split, which the company did to save its stock from getting delisted, it also renewed its ATM program. Through the ATM program, the company can raise an additional $250 million to strengthen its balance sheet.
Management expects to hit a positive EBITDA by the first quarter of fiscal 2021. The company expects to achieve its goal by reducing SG&A expenses and cost reductions. Although Aurora Cannabis thinks that it’s difficult to determine the revenue growth over the next few quarters due to the pandemic, it’s confident about hitting positive profitability soon.
What do I think?
For now, the stock has a majority “hold” rating from the analysts that cover the stock. Analysts reduced the target price for Aurora Cannabis after the earnings fell to 18.1 Canadian dollars from 20.18 Canadian dollars. The amount represents an upside potential of 97% from Thursday’s closing price. The stock gained 14.4% yesterday. Meanwhile, Green Thumb Industries gained 7.1% yesterday. The company released its results for the first quarter of fiscal 2020. Notably, the revenue beat the estimates too.
In May, Aurora Cannabis stock has declined by 25.2%, while Green Thumb Industries has increased by 11.2%. Cronos Group , Aphria , and OrganiGram have declined by 16.8%, 15.8%, and 20.2%.
Despite exceeding the revenue estimates, I wouldn’t vouch for Aurora Cannabis yet. We don’t know if the sudden spike in cannabis sales is a one-time thing or panic buying. Also, the company had to execute a reverse stock split to save its stock price from delisting. However, Aurora Cannabis holds a good position in the medical cannabis market in Canada. Management thinks that the COVID-19 impact could increase in the fourth quarter. After the pandemic ends, we’ll have to see how Aurora Cannabis continues with its revenue growth. Also, we’ll have to see if the company achieves positive profitability and maintains its stock performance.
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