"like putting lipstick on a pig. It makes the animal look better, but it's still a pig."
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Corel revenue to be hit by reporting change
By AMANDA LANG
Technology Reporter The Financial Post
A change in the way Corel Corp. reports sales will mean its revenue this quarter could be as much as 25% lower than expected, the struggling software company said yesterday. The change is actually good news for investors, Corel said. But some analysts warned the lower revenue figure is likely to upset its stock price. Software companies record sales when they ship products to distributors, who then try to sell them to customers. That means revenue already reported could change, if distributors can't sell the products and return them. Corel wants to decrease the amount of products to its distributors so their inventories will be
smaller, said chief financial officer Michael O'Reilly. This moves the company closer to a just-in-time sales inventory model (or as close as a software company can comfortably get), he said.
Although he doesn't know for sure, indications are that inventory is down significantly, which will have a short-term impact on revenue.
Corel is now expected to report, revenue of $55 million to $60 million in its first quarter ended Feb. 28, as much as $15 million lower than expected. Analyst expectations for Corel's revenue have been "all over the map," O'Reilly said, so it is hard to know how the stock will react to this information. "Corel's sales aren't down. This is exactly what we said we would do." The change means "the figure for real sales that turn into cash will, probably for the first time in the company's history, be above sales [to distributors.]"
Some analysts had revenue targets of up to $90 million for the quarter, while others, such as Michel DeLavergne of Dlouhy Investments Inc., already expected revenue in this range. DeLavergne said the change was necessary for Corel. "It will be painful, but it is a good thing." Other analysts agreed, since the change will mean Corel's profit figure is more reliable. "It would be nice if they could do this and have revenue of $80 million," said Duncan Stewart, a partner at Tera Capital Corp. Corel has been struggling for months with falling software sales. It reported a loss of US$231.8 million on revenue of US$260.6 million for the year ended Nov. 30.
Its stock (cos/tse) has actually risen 58% from its low of $2.43 in January as investors speculated the company may be bought by a larger rival. It closed at $3.85 yesterday, down 8«. DeLavergne said that, because it is hard to know what has been driving Corel's stock in recent months, it is also hard to know how investors will react to this news. One analyst is reported to have called Corel's public relations spin on the change, "like putting lipstick on a pig. It makes the animal look better, but it's still a pig." |
