Ron Abelmann made the most forceful statement he has ever made about the so-called hockey-stick phenomenon in revenues. He said straight out that the hockey-stick characteristic of how sales develop during a quarter is dead in WIND. Hockey-stick sales, in which a product company scrambles toward the end of every quarter to make sales, is bad for business and risky. From the first day of his tenure, he has worked successfully to alter sales incentives, accounting procedures, etc. to end that practice. As a result, more of WIND's quarterly revenues are booked typically in the first month of the quarter than the remaining two. (In a sense WIND not follows a reversed hockey-stick pattern.)
Why is this healthy? Because now whenever Ron reports its last quarter earnings, he already knows how the next quarter is shaping up. So when he expresses confidence, you can bank on it. But this is more than just "impressing investors". It means the whole organization can be run without periodic end-of-quarter stress, which can elevate to the point of negotiating questionable deals - just to make the numbers.
That's why last Fall I became suspicious of INTS numbers. It bothered me not only that their costs were clearly out of control, but that they exactly made the analyst's revenue estimates. "Exactly" in that context brought out images of hockey-sticks flying through the air. Not good for the future of the company. Sure enough, their next quarter missed revenues and continued showing higher costs - all contributing to a tanking of the stock.
Also, you should know that the analyst estimates showing lower earnings growth in the last quarter or two for estimated fiscal years is not because they fail to include special run-time license revenues such as I2O, even though you are correct that they fail to include these revenues.
The reason their year-on-year earnings growth tends to fall off excessively is simply a consequence of their spreadsheet models. Their revenue assumptions may be conservative, ignoring big deals like I2O, but even with the revenues they do assume earnings almost always should be greater than they estimate toward the end of each fiscal year. Knowing this, last year when this thread first started, I could confidently say that all the analysts would be raising their estimates as the year progressed - and they did. I secretly knew that even if WIND only met their conservative revenue estimates, earnings would still be greater than what they estimated initially.
This said, you are still correct when you suggested that the analyst will raise their FY 1998 estimates because of I2O and possibly other big deals. This means that there will be a double wammy this year causing estimates to increase faster than usual.
By the way, all you guys did well asking questions of Ron and the other executives. It was nice to hear knowledgable replies to intelligent questions.
Allen |
