SmileDirect, Align headed for another arbitrator visit

Shares of Nashville-based SmileDirectClub (Ticker: SDCfell 20 percent this week after leadership reported underwhelming third-quarter earnings they said were driven by poor economic conditions in their core customer base and changes to Apple’s privacy policies.  

SmileDirectClub CEO David Katzman said the company saw revenues slip 18 percent with a net loss of more than $89 million on the quarter as their key customers — those with a median household income of $68,000, they say — continue to put off discretionary spending. 

He pointed to rising inflation during the second and third quarters, and an economic recovery focused on “goods, not services,” that’s driving consumers to spend less on the company’s teeth alignment product. 

The company also had a wrench thrown into its marketing strategy with the latest Apple iOS 14 update, which allows users to opt out of in-app data collection used by digital advertisers. SmileDirectClub was conducting the bulk of its advertising on Facebook, which said the privacy changes could affect more than 60 percent of their sales and have a massive impact on an advertiser's return on investment. 

“The privacy changes required us to pivot quickly to different lead strategies,” Katzman said in an earnings call Monday night. “Historically, the Facebook platforms were a large portion of our sales and marketing spend and were also highly effective in terms of conversion in our sales funnel. We've not only been shifting marketing spend away from these platforms to more TV, but we've also changed our lead strategy. We are now focused on higher funnel leads to more efficiently and effectively drive long-term growth.”

Company leadership has updated end-of-year guidance to reflect revenue expectations to end 2021 between $630 million and $650 million. In 2020, revenue came in at approximately $657 million. After SmileDirect's earnings report was released on Monday, shares fell more than 20 percent from $5.25 to $4.00, where it has remained. On Friday afternoon, they were trading hands for $4.20. 

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