SeeBeyond Plunges After Missing on Revenue
Updated from April 22
Shares of integration software firm SeeBeyond Technologies (SBYN) plummeted Tuesday amid a half-dozen Wall Street downgrades after the company missed first-quarter revenue estimates and lowered guidance a day earlier.
Shares of SeeBeyond sank $3.65, or 55.5%, to $2.93, the lowest level this year, in recent trading. Shares of competitors webMethods (WEBM) were down 6.8%, Vitria Technology (VITR) was down 2.6%, Tibco Software (TIBX - Get Report) was down 0.3% and Iona (IONA) rose 2.1% in recent trading.
Credit Suisse First Boston, Legg Mason, ThinkEquity Partners, Pacific Growth Securities, Merrill Lynch and U.S. Bancorp Piper Jaffray downgraded their ratings on SeeBeyond after the company reported an 18% decline in first-quarter revenue Monday, falling short of analysts' lowered estimates. The Monrovia, Calif.-based company also lowered full-year guidance and said second quarter performance would be significantly below Wall Street expectations.Perhaps most perplexing to investors, however, was the way the company fielded questions about its decision to defer some revenue, contributing to the miss. The company's deferred revenue rose $3.85 million to $27.7 million. Analysts figured between $1.6 million and $2 million of that was revenue that the company chose to defer rather than recognize in the first quarter. Analysts complained the company did a poor job of communicating its situation by preannouncing and then reporting even lower revenue numbers. The decision to defer some revenue raised concerns about revenue recognition, a subject that has become touchy in the software world. In the past, software companies have been forced to restate numbers after booking deals that auditors said should be deferred, noted Jordan Klein, an analyst with UBS Warburg, who reiterated his buy rating Tuesday. His firm co-managed the company's secondary offering earlier this year. John Ederer, an analyst with Pacific Growth Equities, noted that the first quarter took on more importance because it was the first following that offering, which was meant to push the company's cash position to $100 million to improve its position against competition. "We suspect that for many of the investors who participated in the offering, missing the first quarter out of the gate will be inexcusable," Ederer said in a note. "We believe that some time will be needed for the management team to rebuild credibility with the investment community." Ederer downgraded SeeBeyond's rating to a market perform from a buy and cut his price target in half to $9. "However, we do not believe that this is an entirely broken company, but rather one that is facing a difficult market environment and some near-term operating issues," Ederer said. His company hasn't done any banking business with SeeBeyond. Analysts said they believe the company's stock will remain low until they can prove themselves again in the next quarter or two. SeeBeyond, which earlier this month said earnings would meet expectations but that revenue would fall slightly short, said first-quarter revenue fell to $40.36 million from $49.4 million in the same period a year earlier. The lowered consensus estimate was for the company to report revenue of $42 million, according to Thomson Financial/First Call. At the beginning of the month, SeeBeyond said revenue would range from $42 million to $42.5 million. On Monday the company said a portion of the revenue included in that estimate was deferred. Sequentially, revenue in the seasonably weak first quarter fell 8.4%. On a postclose conference call, analysts hounded the company with questions about its decision to defer some revenue into future quarters. "It's like they missed on purpose," said Erick Brethenoux, an analyst at Lazard Freres & Co., which has a hold rating on SeeBeyond. His firm hasn't done any banking with SeeBeyond. When asked by analysts if that was purely by choice or whether auditors required SeeBeyond to recognize the revenue that way, the company did not answer outright. "I think if we had gotten more than 3 cents a share
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