Shares of Magic Software Enterprises (NASDAQ: MGIC) plummeted 5.11% in intraday trading on Tuesday, despite the company reporting better-than-expected revenue for the third quarter of 2025. The sharp decline appears to be driven by earnings results that fell short of some analyst expectations.

Magic Software reported Q3 adjusted earnings of $0.25 per diluted share, representing an 8.7% increase from $0.23 in the same period last year. While this met the consensus estimate, it fell short of the $0.29 per share expected by analysts surveyed by FactSet. The earnings miss seems to have overshadowed the company's strong revenue performance, which came in at $161.7 million, surpassing the FactSet estimate of $154.8 million and marking a 13.07% year-over-year increase.

Despite the market's negative reaction, Magic Software attempted to paint a positive picture by raising its 2025 revenue guidance to a range of $610 million to $620 million, up from the previous guidance of $600 million to $610 million. However, this upward revision in outlook failed to offset investor concerns about the company's profitability. The sharp stock decline suggests that market participants may be focusing more on the company's ability to translate revenue growth into stronger bottom-line results in an increasingly competitive software industry landscape.