UY
LARGE CAP
USD 33.98
Siebel Systems (SEBL)
Q1 Afterburners Still On - More Turbulence Forecasted
Summary
SEBL once again defied gravity and posted one of the strongest quarters within
the enterprise software universe. Q1:01 revenue of $588.7M (84% y/y or 1% q/q)
was 10% above our $533.4M estimate. EPS was $0.15, a penny ahead of our $0.14
estimate. License revenue was $335.1M, $24.7M above our estimate and
represented 71% year-over-year growth or (8%) seq. growth.
Despite strong results, demand environment continues to deteriorate. As a
result, we are lowering our CY01 revenue estimate by $56M to $2,466M (37%
growth) and lowering our CY02 revenues by $226M to $2,980M (21% growth).
Lowering CY01 EPS by $0.05 to $0.60, and lowering CY02 EPS by $0.05 to $0.75.
Recent release (Fall '00) of Employee Relationship Management (ERM) product line
(My Yahoo! on steroids) represents next major growth driver with the promise of
becoming SEBL's second largest revenue contributor over the next year.
Although the pipeline is filled with 3,400 transactions representing $1.2bn in
license revenue, we still remain concerned about conversion hit rates in the
backdrop of a weak IT spending environment. While our reset DCF price target
reflects limited upside from current levels (6% upside from current levels -
assumes 24.5% op margin, 17% discount rate, 5yr revenue CAGR to 2004 of 39%), we
expect SEBL's stock to outperfom based on virtually no competition and flawless
execution.
Price Target Mkt.Value 52-Week
04/18/011 (12mo.) Div. Yield (MM) Price Range
USD 33.98 $36 None $17,666.2
Annual Prev. Abs. Rel. EV/ EBITDA/
EPS EPS P/E P/E EBITDA Share
12/02E $0.75 $0.80 NA
12/01E $0.60 $0.65 NA
12/00A $0.29 NA
March June Sept. Dec. FY End
2002E Dec
2001E $0.15A $0.12 $0.15 $0.19
2000A $0.06 $0.09 $0.12 $0.20
ROIC (12/00)
Total Debt (12/00)
Book Value/Share (12/00)
WACC (12/00)
Debt/Total Capital (12/00)
Common Shares 519.9
EP Trend2
Est. 5-Yr EPS Growth
Est. 5-Yr. Div. Growth
1On 04/18/01 DJIA closed at 10,615.83 and S&P 500 at 1238.16.
2Economic profit trend.
Siebel Systems is the leading provider of eBusiness applications that support
internal sales, marketing, and customer-service organizations and extend that
support throughout the entire extraprise, uniting third-party resellers and
service providers, business partners, and customers into a single information
system.
Q1:2001 Investment Summary
SEBL once again defied gravity and posted one of the strongest quarters within
the enterprise software universe. SEBL's uncanny ability to call high within an
organization (attack decision makers, not noise makers) and control costs with
the flip of a switch lead to another stellar quarter. Recent release (Fall '00)
of Employee Relationship Management (ERM) product line (My Yahoo! on steroids)
represents next major growth driver with the promise of becoming SEBL's second
largest revenue contributor over the next year. Although the pipeline is filled
with 3,400 transactions representing $1.2bn in license revenue (15 over $10M, 28
over $5M, 135 over $1M, and thousands under $1M), we still remain concerned
about conversion hit rates in the backdrop of a weak IT spending environment.
Revenue: SEBL's total Q4 revenue grew 84% year-over-year and 1% sequentially
to $588.7M, $55.3M or 10% ahead of $533.4M estimate. EPS of $0.15 was a penny
better than our $0.14 estimate. License revenue increased 71% year-over-year
and (8%) sequentially to $335.1M representing 57% of total revenue (100 basis
points lower than our estimate) and bettering our estimate by 8%. Service
revenue increased 104% year-over-year and 17% sequentially to $253.6M, $30.6M
or 14% above our expectation. Service margins fell 260 basis points
sequentially to 35.9% and were 70 basis points lower than our 36.6% estimate.
License revenue from existing customers was 48%, down from 56% last quarter.
In total, license revenue from existing customers decreased 21% sequentially,
but rose 65% on a year-over-year basis. SEBL booked repeat orders with IBM
(expanded from 55K seats to 135K), Dresdner Bank AG, Washington Mutual, Bose,
Fidelity, New England Life Insurance, among several others. As mentioned on the
Q4:00 earnings call, management expected that existing customers as a percentage
of revenue would increase due to the company's large installed base (exceeding
3,000 customers).
In addition to the repeat business of Q1, SEBL continued to fill its pipeline
with a host of new customers. License revenue from new customers increased 78%
year-over-year and 8% sequentially to $174.3M, up from $160.7M last quarter and
$142.0M in Q4:00. New customers wins during the quarter included AT&T Wireless,
DirecTV Operations, Pepsi, Lufthansa, Telecom Italia, Net IQ, Matrix One,
Komatsu, Wind River, and Ionex Telecommunications. SEBL showed its traditional
strength in the high tech, financial services and telco industries, supplemented
by a growing presence in financial services, the company showed increased
strength in the government, pharma, consumer products, and retail industries.
ASPs grew 6% sequentially to $428K. Excluding deals under $50K, ASPs were $734K,
a 15% sequential increase over last quarter. Although macro conditions have not
been highly receptive to larger deals, SEBL still managed to close 59 deals
over $1M (vs. 80 last quarter).
The competitive landscape remained relatively unchanged during the quarter.
Management claimed that 52% of the deals were uncontested, slightly up from 49%
last quarter. The most frequent competitors were very similar to last quarter.
Clarify/Nortel faced off with SEBL 5% of the time, Vantive (5% of the time),
Oracle (7% of the time), and SAP (3% of the time). As CRM vendors look to
broaden their product offerings, we expect to see continued consolidation in the
market as noted by the recent Broadbase and Kana combination.
International growth remains relatively healthy. In Q1, international license
revenue grew 81% year-over-year to $127.3M, accounting for 38% of total product
revenue (vs. 41% last quarter and 43% in Q3:00). SEBL's long-term target for
international license revenue remains 60% (40% EMEA and 20% APAC).
Expenses: Operating margin declined to 18.2%, 110 basis points lower than our
estimate, due to a slightly higher than expected cost structure. Total operating
expenses of $315.7M were $31.4M higher than our estimate. Sales and marketing
expenses were $212.5M and represented 36.1% of total revenue. Research and
development expenses were $48.7M and represented 8.3% of total revenue. General
and administrative expenses were $54.5M and represented 9.3% of total revenue.
Total headcount increased 13% sequentially from 7,389 at the end of last
quarter to 8,327 at the end of Q1:01. Sales and marketing headcount increased
by 8% sequentially to 2,868. Development increased 39% sequentially to 1,184.
We expect to see organic growth in this area to smooth out, especially under
the current macro conditions. Customer service grew by 8% sequentially to 3,527.
G&A headcount was up 15% sequentially to 748.
Balance sheet: (1) Cash of $1.34B was up 1% sequentially from $1.15B. (2)
Deferred revenue increased 22% sequentially to $247.3M. (3) DSO decreased 5
days sequentially to 76 days, within management's range of 70-80 days. |
