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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: AlienTech who wrote (292)	3/25/1998 10:39:00 AM
From: Rick	Read Replies (3) \| Respond to of 4509

As far as PSFT missing a quarter, consider the following: Peoplesoft has a significant bucket of money on the balance sheet as "deferred revenues". From an accounting perspective this would typically represent contractual commitments from customers that cannot be recognized as revenue yet in the income statement due to the need to match revenues and expenses. In other words, there is still effort that the company needs to expend in order to deliver on its committment to the customer. When the company delivers on its committment (delivers software and does base install, for instance) the $ are recognized as revenue on the income statement. Now, the amounts in this bucket may just be ordinary amounts in accordance with accounting principles. But, the sense is that Peoplesoft is ultra-conservative in its use of deferred revenues. This is interesting since most companies with pressure to make great earnings typically are aggressive in recognizing revenues (Oracle, an excellent example; Informix accounting debacle was based on improper revenue recognition). The theory is that Peoplesoft uses this account as a "war chest" to smooth out the ups and downs of quarterly earnings swings. If there is significant "revenue" in this account that can be reasonably moved to the income statement in any given quarter, then Peoplesoft can in effect manage the earnings picture. Why would they want to do this ? Wall Street pays a higher premium for predictibility. It is a lever that can be used on the margin to produce the desired earnings results. The theory seems plausible by looking at the actual results over the past couple of years: Peoplesoft always seems to beat estimates by about 15%; this is unlikely to happen unless earnings are being managed. In other words, compared to similar companies (Baan has been mentioned as an example that Lehman made a comparison to) Peoplesoft may in fact be under-reporting earnings. Now, you could make an argument that the company should just report the results as they happen and not try to manage earnings, but it gives me great comfort that Peoplesoft seems to managing earnings in a conservative manner - very unique in high tech accounting. They seem to have managed expectations very well, and have been rewarded with a high multiple - deserved in my estimation. This company just has an air of rock solid management. Any comments? So, back to the main point: how likely is Peoplesoft to miss a quarter ? They seem to manage expectations and deliver the results - I wouldn't bet on it. Rick. P.S. If you're short this stock, why not wait until some bad news hits and then short it (there is always a lag in stock price response). If you're relying on the idea that an earnings shortfall will occur someday, you might be waiting 1 year, 2 years, 3 years, who knows.

To: AlienTech who wrote (292)	3/25/1998 1:03:00 PM
From: Tom Kearney	Read Replies (1) \| Respond to of 4509

Alien - promise me you'll keep posting when PSFT is @$100/sh (9 months from now) - <ggg>. Regards, TK