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Technology Stocks : Firstwave Technologies, Inc. (FSTW)
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To: Gary105 who wrote (22)11/30/1997 9:24:00 AM
From: Roger A. Babb  Read Replies (1) of 1205
 
Gary, this is my delayed response to you request for my scenario on revenues and earnings. I expect revenues in Q4 to be substantially up from Q3 due to TakeControl upgrades and some new TakeControl sales. I expect continued revenue growth in Q1 but mostly from upgrades, new TakeControl sales may be dampened by folks waiting on NetGain (my company is in that category). NetGain will contribute some to revenues in Q2, but the big growth will start in Q3 as sales take some time to be closed and revenue recognized.

As to the low analyst earnings estimates, I was earlier predicting much higher numbers. But the CEO made it clear in the investors meeting that he was going to expense as much as possible of the R&D work and NetGain marketing rampup thus "using up" the profits from current sales for the next three quarters or so. To put that in perspective, over $600k of R&D was expensed last Q, less conservative management would have capitalized the R&D and shown a $.12 per share profit. I expect they will continue this practice until NetGain ramps up. The CEO is managing the company to maximize growth, not short term earnings.

I agree with this policy. It has always been my practice when evaluating tech companies to add "legitimate" R&D to earnings before calculating the PE. And my favorite short sales are tech companies with high current earnings and little R&D, just milking the current product (CTXS comes to mind). The most valuable asset of a tech company is its people and their ability to stay up with technology.
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