PeopleSoft Reaffirms Outlook
The Motley Fool - September 04, 1998 12:45
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September 4, 1998/FOOLWIRE/ -- PeopleSoft Inc. (Nasdaq: PSFT),
the number two provider of enterprise application software for business
gained $2 5/16 to $31 7/8 this morning after reiterating its positive
outlook for the balance of its fiscal year (and beyond) in a conference call
last night. The company reaffirmed its expectation that total revenues in
the third quarter will grow 60% year-over-year, and that cumulative 1998
results will see top-line growth in the range of 60-65% compared with 1997.
As well, PeopleSoft forecast 1998 operating margins in the company's target
range between 18-20%. Nothing new here -- it seems that PeopleSoft just
wanted to clearly articulate its present business position in the wake of
six months worth of inquiries regarding its operations and the enterprise
resource planning (ERP) market as a whole.
Systems management software has grown in tandem with the applications
market. Client/server's rapid acceptance hinged on its flexibility, and as
it progressed, the complexity of performing systems management tasks
increased dramatically. With respect to the enterprise resource planning
market as a whole, PeopleSoft cited recent forecasts made by AMR Research
that ERP is set to grow at a compound average rate of 37% over the next five
years, with license revenues growing 33% and service revenues set to grow by
45%. PeopleSoft's second quarter yielded some pretty sweet growth on these
various fronts as revenue from services came in at $172 million, up 97% from
the same period last year, while license revenue grew 53% from the prior
year and maintenance revenue increased by 97% year-over-year, to $68.1
million.
Investors need to decide how they want to value the services business
associated with ERP companies. As the complexity mounts, ERP customers are
forcing vendors to manage implementation projects and get more heavily
involved on the ancillary services side of things. As many commentators have
noted, the consulting engagements that are emerging from this trend are
resulting in improved customer satisfaction levels and subsequently,
increased follow-on product sales. The thing is, the consulting business is
growing more quickly than license revenue for almost every vendor in the
enterprise software business. Seeing how PeopleSoft is managing its
financial software business, online transaction processing applications, and
the growing opportunities it is creating in the international space
(PeopleSoft 7.5 will be key), it is definitely worth a closer look for
investors unafraid of untangling a segment with lofty valuations.
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