RAZF Nice words from Briefing.com and it could be another tech value play at this $5 price.
Razorfish (RAZF) 4 7/8 -3 7/8: Another IT services company will miss estimates this quarter, marking the eighteenth company to do so this quarter. After the first seventeen, it can hardly come as much of a surprise, but in fact, this warning was a bit different than the prior announcements. The difference is, this is Razorfish. Razorfish is one of the big players in the space, one that was supposed to withstand a short-term business slowdown, even benefit from smaller players' difficulties. Despite the 44% drop in market cap and the new all-time low in share price, RAZF's warning was only a slight miss. The company expects to post revenues of approximately $77-78 million, a sequential increase of 1-2% from Q2's $76.6 mln and a y/y increase of 75%. Most analysts had modeled $80.5-81.5 mln for the Q3 top line, so the miss amounts to only a 4-5% shortfall. Furthermore, every analyst that commented on the warning said that demand remains very strong, and this is only a seasonal slowdown. So why is the company going to post EPS of $0.01-0.04 versus the consensus estimate of $0.08? You guessed it, the weak Euro. Razorfish has aggressively expanded their European operations, with special emphasis on Sweden, and those new hires coincided with a falling Euro and a dotcom spending slowdown. Also, digging through RAZF's Q2 10-Q, this foreshadowing note was discovered, "...in Sweden, each employee must receive a minimum of 25 days paid vacation per year. These vacations are typically taken in the third quarter, possibly resulting in declining revenues..." So we can blame the socialists, and expect the picture to only get better from here right? Not exactly. Although Razorfish's US revenues grew 14% sequentially (in sharp contrast to their competitors' warnings), because their growth efforts have been focussed on Europe, and this "weak Euro" theme keeps recurring, the near-term picture remains cloudy. However, long-term their European strategy will benefit the company, and their strong US sales in the face of a tough quarter for their competitors bodes well for their long-term success. Is this a buying opportunity? Depends on your timeframe. No near-term catalysts are apparent, but long-term investors should consider this: RAZF shares are now trading at 10.4x FY01 EPS estimates and 1.03x FY01 estimated sales ($450 mln) for a company growing revenues at over 45% long-term. - Matt Gould, Briefing.com |
