Guidance Software Inc. shares plunged 39 percent early Friday after the software developer unexpectedly reported a larger net loss for the second quarter and cut its 2008 outlook. Two analysts cut their recommendations on the stock.

Shares of the Pasadena-based Guidance, which develops software used in digital investigations, dropped $4.06 to $6.46 in mid-morning trading Friday on the Nasdaq. Roth Capital had downgraded the stock from “buy” to “hold” and Wachovia Securities downgraded it from “outperform” to “market perform.”

Guidance said after Thursday’s market closed that its second quarter loss had increased 130 percent to $2.6 million, or 11 cents a share, on lower-than-expected orders for its flagship EnCase Enterprise software, which enables clients to conduct digital probes on data from a single location. Revenue increased 16 percent to $21.5 million.

Excluding share-based compensation expenses, the net loss was 3 cents a share. Reuters Estimates said analysts on average were expecting a profit of 2 cents a share, before items, on revenue of $23 million.

The company adjusted 2008 earnings, excluding items, to 18 cents a share, compared with a previous forecast of 11 cents to 24 cents a share. The company now expects 2008 revenue between $90 million and $95 million, compared to a prior forecast of $94 million to $99 million.

Analysts on average were expecting a full year profit of 20 cents a share, before items, on revenue of $97.6 million for the year.