BEA Systems Backs Up the Bold Talk and Promises More
By Joe Bousquin
Senior Writer
5/15/01 8:02 PM ET
Updated from 6:19 p.m. ET
It wasn't just a bunch of BEAS.
BEA Systems (BEAS:Nasdaq - news), the application server company that touted its prospects repeatedly during its fiscal first quarter, slightly topped analysts' expectations Tuesday for the three months ended April 30 before bumping up its earnings guidance for the remainder of its fiscal year.
The company reported earnings of $35.9 million, or 8 cents a share, on revenue of $257.2 million. License fees were up 89% to $161.2 million, compared with the $85.2 million the company reported a year ago.
Analysts were expecting the company to earn 7 cents a share, according to Thomson Financial/First Call.
In regular session trading, BEA shares traded up $1.05, or 3.2%, to $34.04. In after-hours trading, subsequent to the company releasing its quarterly results, the stock was up another 5.4%, changing hands at $35.91.
During the quarter, BEA's stock benefited several times as CEO Bill Coleman took to the investment conference road with a single message: Business is good, despite the slowing economy. Tuesday's numbers seem to validate those statements. BEA Systems makes application server software, which connects what a customer sees on a Web site to the database that sits behind it.
During the quarter, Coleman repeatedly told investors he was comfortable with the company's previous financial guidance, even as other tech firms hedged their bets by bringing guidance down. On its last conference call in February, the company said it expected an increase in revenue of 46% to 48% for fiscal 2002 to $1.19 billion to $1.21 billion, and earnings per share 3 cents to 4 cents above analysts' estimates, which were 37 cents at the time. Analysts are looking for 2002 earnings of 40 cents a share and revenue of $1.19 billion for fiscal 2002, according to Multex.
With the earnings behind them, investors turned their attention to guidance. There was so much focus on guidance going into the call, that Coleman kicked off the company's conference call this afternoon by reiterating it. "Based on our Q1 financial results, our pipeline and recent bookings experience, we continue to be confident in our ability to meet analysts' expectations for the year," Coleman said. "We are maintaining our guidance."
But later in the call, BEA in fact raised its guidance. It said fiscal 2002 earnings would be 41 cents to 43 cents a share, 2 cents above its previous guidance. Yet at the same time, it said revenue growth would come in at the low end of the 46% to 48% growth range it previously offered.
BEA figures it can get higher earnings on as-expected revenue from the fact that more of its business is coming from its software licenses, which have higher profit margins than the consulting services the company also provides. The company said it expects its services division to consistently account for a lower percentage of its overall revenue in the future.
Profit margins will come in between 20% and 21% for the year, the company said. Also, it's expecting 55% to 59% growth in its license revenue. It cited a range of $740 million to $760 million in license revenue for fiscal 2002.
In the past several weeks, as the company has gone into its "quiet period" before its earnings announcement, some Wall Streeters speculated that BEA might have trouble hitting its numbers. Several analysts downgraded the stock in April, citing lengthening sales cycles and a slowing economy.
Bulls on the company, however, pointed to the fact that BEA didn't warn that it would fall short, as did plenty of software companies whose quarters concluded at the end of March. In the end, it didn't. And that should make all the difference to the bulls now.
"Today's conference call, today's results, were probably what every bull was looking for," says Mark Mulcahy, an analyst at Pacific Growth Equities who rates the stock a buy. "Certainly a lot of people will be excited by the results." (His firm hasn't done underwriting for the company.)
He said the company was able to achieve its results while other technology companies did not due to a combination of a few simple, yet elusive, elements: a good market, a good product and sound management.
Yet like many people on Wall Street, Mulcahy isn't pounding the table on BEA because of its high valuation. It trades at a hefty 89.8 times fiscal 2002 earnings estimates. (Those estimates will likely go up, causing the company's price-to-earnings ratio to decrease, after analysts work up their new models based on the company's new guidance.)
"I do think it's worth paying more for this company than others, but the question I always come back to is how much more do you pay?" Mulcahy says. "I think the premium valuation is already priced into the stock."
With the stock price ranging between $20 and $45 since the beginning of April, plenty of other people seem to be wondering how much they're willing to pay for the stock, too.
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