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To: Lizzie Tudor who wrote (12967)	7/23/2002 4:00:32 PM
From: stockman_scott	Respond to of 57684

WebMethods shares fall as investors query software sales By Siobhan Kennedy Tuesday July 23, 3:43 pm Eastern Time NEW YORK, (Reuters) - Shares of software company webMethods Inc. (NasdaqNM:WEBM - News) lost more than 8 percent on Tuesday as investors, concerned about the way the firm books its quarterly software sales, fled the stock. Shares of webMethods -- whose software enables companies to stitch different computer systems together -- were off 77 cents, or 8 percent, at $8.85 in afternoon trading on the Nasdaq. After the markets closed on Monday, webMethods posted a quarterly loss in line with its lowered expectations on revenue that was roughly flat with the prior quarter. For most software companies in this tough climate, meeting expectations is enough to lift the stock the following day. But for webMethods, investors instead focused on the company's software license sales -- or the amount of software the company actually sold during the quarter. At issue was how much revenue came from new deals versus the amount from customers simply renewing their existing software contracts. The concern was that webMethods was relying too heavily on the existing customers to make up its revenue numbers each quarter, as opposed to winning new business, analysts said. But Tom Berquist, an analyst with Goldman Sachs, said investors were overreacting. "It's an overreaction to new information disclosed by management last night," Berquist said, referring to a conference call webMethods' held with analysts after publishing its quarterly earnings on Monday. "There's actually a smaller percentage of revenue coming from previous deals than we had thought," Berquist said. In a research note published to clients on Tuesday, Berquist said he originally believed that the amount of business coming from renewals was potentially in excess of 20 percent of quarterly software sales, "which could inflate the appearance of the company's license revenue growth." But after the conference call with webMethods' management on Monday, Berquist said he now believes that amount is far smaller -- less than 10 percent of total license sales, or only about $2 million to $3 million per quarter, he said. In addition, Berquist said he believed that that proportion should remain stable in coming quarters. "This disclosure largely relieves our concern of a revenue 'hole' appearing sometime over the next couple of quarters once renewals dry up," he said. John DiFucci, an analyst with CIBC World Markets said the concern over webMethods software license sales was further complicated by the fact that the company uses the license increases as proof it is gaining market share over its competitors -- such as SeeBeyond Technology Corp. (NasdaqNM:SBYN - News), Tibco Software Inc. (NasdaqNM:TIBX - News). "webMethods appears to have performed better than the competition in that space and they've made claims that they've been gaining market share in license revenues," DiFucci said. "However, if you get a certain percentage from the renewal model ... you shouldn't be able to claim that part as license revenue increase," he added. "So people have said that that's misleading and webMethods has gotten hit for that over time," he said.