No. of Recommendations: 2
I was in this stock at the time. AAOI was heavily dependent on Amazon as a customer (something like 60% of their sales). In fact, they had set up a warehousing operation from which Amazon could just help itself to inventory as needed and AAOI would then bill them. Two weeks before the ER that caused the drop, AAOI pre-announced very good numbers for the quarter then ending that supported its skyrocketing share price, but said nothing about next quarter's guidance. Then as part of the ER/CC, a mere two weeks later, they announced that something had happened to the Amazon relationship -- Amazon had mysteriously stopped or greatly reduced its inventory pulls and forward guidance would be greatly diminished. AAOI was unable to explain exactly what was going on with its dominant customer. Only in response to an analyst's question did AAOI suggest that they had just become aware of this turn of events with Amazon in the two week period between the pre-announcement and the ER/CC. The CFO's response lacked credibility in my view -- he paused and was very hesitant in responding to the analyst. AAOI management lost all credibility. I sold out and haven't looked back.
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