SEBL $23-$17 P/E 31...misses by 2 cents..reaffirms for Q4.
Thursday October 18, 1:33 pm Eastern Time
MotleyFool.com - Fool News
Siebel Disappoints
By Mike Trigg
Customer relationship management software vendor Siebel Systems (Nasdaq: SEBL - news) yesterday reported its first earnings miss since the software vendor went public in 1996. The announcement was unusual in that the results were mistakenly released in the final hour of trading, and the stock quickly fell 10% before it was halted. The below-par results, particularly from a company with Siebel's track record, were further evidence of sad state of the information technology (IT) spending environment.
CEO Tom Siebel said the results were drastically impacted by the events of Sept. 11, which spurred additional cuts in spending. While many investors expected furthe r difficulties in closing deals following the attacks, that Siebel didn't preannounce was a surprise. Software vendors typically do as much as 50% of their business in the final days of the quarter, so if deals don't close, the company usually knows and can warn investors.
The absence of a warning prompted Siebel's stock price to jump roughly 50% in the past couple of weeks, as investors assumed the company would meet expectations. But according to an interview quoted in a Dow Jones Newswires article, Tom Siebel said he did not preannounce because the company's third-quarter earnings, while short of the consensus estimate, were within the range of Wall Street's forecasts.
The company reported third-quarter earnings of $35.2 million, or $0.07 per share, compared to $67.5 million, or $0.13 per share, in the year-ago period. Sales fell 14% to $428.5 million. Wall Street expected earnings of $0.09 per share and sales of $490 million. Moreover, license revenues -- an indication of how much new software the company sold in the quarter -- fell roughly 37% to $193.5 million, well below Wall Street's expected of $220 million.
Key balance sheet metrics also disappointed, with days sales outstanding (DSOs) rising beyond its target and deferred revenue falling sequentially for the first time. DSOs, which measure how long it takes to collect money on sales, increased from 67 days in the year-ago quarter to 87 days, well above Siebel's target of 75 to 85 days. Rising DSOs indicate that it's taking a company longer to collect money it's earned, which hurts returns on capital and cash flow. Deferred revenue, a liability representing sales collected before some services are performed, fell 8% to $230.7 million.
It was a terrible quarter to say the least. Not only were tech vendors struggling prior to Sept. 11, but the terrorist attacks made it even more difficult for sales forces to close deals, as problems with air travel made meeting with potential customers a dicey task. Some analysts, meanwhile, believe Siebel is facing increased competition and improved product offerings from Oracle (Nasdaq: ORCL - news), PeopleSoft (Nasdaq: PSFT - news), and SAP (NYSE: SAP - news).
Talk of increased competition has plagued Siebel for years, but little evidence suggests that it's losing deals or market share. Oracle, PeopleSoft, and SAP are viable long-term threats, but Siebel's results likely had more to do with spending conditions than anything else. The company's lackluster results are also an indication of the toughness of the enterprise software market: Siebel remains profitable and cash flow positive, but smaller players may have a tougher time surviving.
In the meantime, conditions aren't expected to improve. Siebel didn't give guidance for the fourth quarter or 2002, but said it was comfortable with current expectations. With sale slowing, the focus is on profits. Operating margins plummeted from 18.4% in the year-ago period to 10.5%. Siebel remains committed to restoring its 20% target margin, and has already done a good job of cutting costs like bonuses and personnel, but further cuts will be needed. |
