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The Stock That Crashed 25% Overnight Has a Lesson to Teach Us: Market Recon

"It is during our darkest moments that we must focus to see the light." -- Aristotle

The Cradle Will Rock Ever hear of a small-cap firm known as Applied Optoelectronics (AAOI) ? Day traders sure have. Many others have as well. If you haven't ... well, sit down. You are about to. Applied Optoelectronics reported quarterly earnings last night. For the second quarter, the firm earned $1.54 a share, beating expectations by $0.22 cents. Revenue was reported at $117.4 million, another beat, and up 112% year over year. Wow! The stock had rallied over the last few minutes of the trading session to close at $97.99, leaving the name up 4.8% on the day, and up an incredible 318% for the year. That's precisely when the music stopped. Applied Optoelectronics is a manufacturer of, wait for it ... optical equipment. Its best customer is Amazon (AMZN) , accounting for more than half of the firm's entire business. Other significant clients are Action Alerts PLUS charity portfolio holding is Facebook (FB) , and Microsoft (MSFT) . After the bell, and after the numbers had been released, AAOI announced that the firm had seen softer demand than had been expected for their 40 gig solutions from one of their large customers. Speculation immediately centered on Amazon, though the company was not identified. Speaking of speculation, there has been plenty that Amazon, among other large tech firms (MSFT?) would start creating some of their own optical equipment, rather that purchase it from an external source.

Down goes Frazier, and down went Applied Optoelectronics. In the dark of night, the shares were trading around $72. That was more than a 26% discount from Thursday's closing price. It was not just AAOI, either. Competitor Infinera INFN was running at a 10% discount this morning as well, after reporting a light revenue number after last night's closing bell. Another name to watch in the space will be Macom Technology Solutions MTSI. This firm makes the chips used in this type of equipment. It missed on EPS and revenue earlier in the week, and have now warned of reduced demand for their products from Chinese clients. Bet you thought I would lead with Jobs Day today, didn't you? I go wherever the folks will be fighting over the money, gang.


Another firm dancing with the "Ugly Stick" overnight is Viacom VIAB. For those uninitiated, these guys own Nickelodeon and MTV. They came in light on revenue last night as well. If you listened to the call, you found out that the firm had not received an expected payment back in June from Huahua, a studio in China, with whom Viacom though it had landed a $1.0 billion deal earlier in the year. While revenues at Paramount showed growth and the international business grew, domestic advertising sales fell by 2%, and subscribers fell by 3.5% over the firm's fiscal third quarter. Oh, boy ... where have we seen this story before? The firm did reduce its debt load. At least, that's a positive.

Indeed, there is some...