Own enterprise software or services companies? Let Persistence Software's warning be a warning for you, even if you don't own PRSW.
We take this warning to be more evidence that there is a Y2K induced slowdown in enterprise IT budgets. Persistence Software warned today that they will not meet analyst expectations, primarily because of revenue shortfalls. Persistence makes transactional application server software. The market is larger corporate IT departments that want to link legacy systems to newer ecommerce systems. The revenue shortfall for Persistence is severe. Last quarter was $4.2 million; the warning states they expect $2.8 million, which is flat year-over-year. This is the first time Persistence hasn't shown strong year-over-year growth, and the stock is getting pummeled for it today.
Persistence blames the shortfall on a "delay in finalizing a large contract." But in business, it ain't a deal until it's a deal. We admit at Briefing.com that we don't know much about the particular contract in question, but in our experience, delayed contracts often have a way of never happening.
Salesmen try very hard to close by the end of the quarter, but when they can't, it most likely means the customer is just plain dragging their feet. Why? Y2K concerns and readjusted budgets because of Y2K efforts are Suspect #1.
The industry would prefer that no one talk about the reluctance of corporate IT departments to start new technology efforts prior to making it past the Y2K deadline, but there is just too much cicumstantial evidence of this showing up in enterprise software and services companies. Persistence is just one of many.
You might be happy you don't own PRSW today, but if you own a stock in this sector, take some time to consider the risk of revenue shortfalls due to reluctant customers. - RVG
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From E*Trade's "Story Stocks by Briefing.com"
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