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Top Stories: Accelr8's Blowout Earnings: A
Glimpse of Y2K Future?
By Cory Johnson
Staff Reporter
12/3/97 5:40 PM ET
In the last 12 months Year 2000 stocks have gone from sketchy concept
to overvalued joke to pricey play. But Tuesday's blowout earnings from
Accelr8 (ACLY:Nasdaq) might be a sign that Y2K stocks are about to
take yet another weird turn -- this time, toward profitability.
On Monday Accelr8 reported revenue of $1.6 million for the quarter that
ended Oct. 31, up from $612,929 a year earlier. Net income rose to
$826,196, or 11 cents per share, from $235,878, or 3 cents a share, a
year ago. That number blew out the 7 cents a share the Street was
looking for, according to First Call, just as the previous quarter
surpassed analysts' estimates.
The stock actually sold off on the good news, dropping 1 5/8 to close
Monday at 20 7/8, giving it a price-to-earnings ratio of 90.8. On Tuesday,
Accelr8 recovered slightly, closing at 21, where it also closed on
Wednesday. But the stock has had a nice rise in the last week: on Nov.
24, the stock closed at 18 7/8.
Perhaps that's because Accelr8's CEO, Tom Geimer, spent the last few
weeks on the road singing the Accelr8 gospel. And he's got plenty to
sing about. Since September, Accelr8 has dramatically outperformed it's
peers, gaining 33% in value, while the Year 2000 Index (YTK:AMEX)
has been flat, Peritus (PTUS:Nasdaq) is off 40% and industry leader
Viasoft (VIAS:Nasdaq) is down 28%.
Most important, Accelr8's earnings may provide the signal the entire Y2K
industry has been waiting for -- that irresolute purchasing managers are
finally loosening their purse strings. "Everyone in this industry has been
saying: Next quarter, next quarter," says Alan Deary, chief financial
officer of Peritus, another Y2K player. "I've finally given up guessing
which quarter it will happen."
"It's been killing these guys to sign the contract and write the check,"
says Alan Jacobs, Avalon Research's director of research (Avalon
has not done any investment banking for Accelr8 or anyone else).
"They're being forced to spend money on projects that won't improve
their computer systems in any way, it's money that they thought they
spent already, and they're having to spend it again. But now it looks like
they're ready to sign and they're starting to sign."
Geimer has long talked about big projects lurking right around the corner.
And these earnings seem to offer a good look around that corner. "It's
finally starting to come our way," says Geimer. "There's definitely a
feeling on the part of some of these corporations that they have to make
some decisions about this and they have to make them now. Everybody
in this business has been looking for a trend and I hope this is it."
Accelr8 makes money two ways: through software -- the sale and
licensing of tools for Y2K remediation -- and services -- Accelr8's
employees doing that work. In the last quarter, Accelr8's revenue was
heavily weighed toward product sales, at $1.3 million, with just
$379,000 coming from services. Geimer says that they'll both continue to
grow, and that services will really start to take off in the next year.
"These earnings are just a strong confirmation that their business is
starting to take off," says Avalon analyst Mike Harrold. "I hate to say
their business is starting to accelerate, but everything is clearly on track
for this company."
This could be the first sign that the ice is starting to thaw in Y2K's winter
wonderland. "When you look at this revenue starting to come on line,"
says H.C. Wainwright analyst Alex Arnold, "and you look at the beat
up valuations of these Year 2000 stocks right now, it's creating a real
buying opportunity."
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