Here's Why Harmonic Stock Soared Higher While the Nasdaq Dropped

Here’s Why Harmonic Stock Soared Higher While the Nasdaq Dropped

Shares of video-streaming technology company Harmonic (NASDAQ: HLIT) soared higher on Tuesday after reporting financial results for the first quarter of 2024. As of 2 p.m. ET, Harmonic stock was up 15% in stark contrast to the 1% drop for the Nasdaq.

Revenue is down, but the backlog is up

In Q1, Harmonic generated revenue of $122 million, which was down 23% year over year. This included a 21% decline in its broadband-segment revenue and a 25% decline in its smaller video-segment revenue. The company’s gross margin also went down. And on the bottom line, it had a net loss of $8 million compared with net income of $5 million in the prior-year period.

With all the financial metrics trending in the wrong direction, investors might rightly wonder why Harmonic stock is up. Here’s why: There’s some cyclicality with the company’s revenue, and one number points to improvements in the near future.

Harmonic’s backlog was at $678 million at the end of Q1. Not only is this a record backlog for the company, the backlog was up 9% year over year. Therefore, this metric is pointing to revenue growth in the not-so-distant future as this backlog is realized.

The future is the video business

Harmonic’s video segment accounted for 35% of its Q1 revenue. Management had conducted a strategic review of the segment. But earlier this month it elected to keep it instead of divesting it.

Harmonic’s video-business technology improves live-streaming capabilities, including live streaming for sports, which certainly seems like an idea on the right side of industry trends. And the company boasts some impressive customers, including its two biggest customers Comcast and Charter Communications.

Considering its video-segment revenue is higher margin, it makes sense that Harmonic would keep it and focus on it. However, the company still has work to do when it comes to growing this part of the business and turning a consistent profit. Expect incoming CEO Nimrod Ben-Natan to talk more about this when Harmonic has its investor-day presentation on June 13.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.