Manugistics May Be a Better Prophet Than Oracle

For applications software businesses, Manugistics' report could be telling.
By Joe Bousquin ,

Oracle

(ORCL) - Get Report

got them all in a tizzy, but

Manugistics

(MANU) - Get Report

might be more meaningful.

After Oracle said Monday that it probably

touched bottom during its fiscal fourth quarter, the software sector zoomed on Tuesday, as investors seemed to figure that if the world's second-largest software company saw light, others will likely soon find their way, too.

Oracle's stock shot up 12.9%, or $1.92, to close at $16.76 Tuesday, as

Siebel

(SEBL)

added 9.4%,

SAP

(SAP) - Get Report

gained 6.2% and

PeopleSoft

(PSFT)

put on 2.5%.

But while database dominator Oracle's outlook was enough to get investors gooey over software Tuesday, the results of another code maker might be more pertinent. Supply chain software maker Manugistics is set to report fiscal first-quarter numbers Thursday. Because it focuses on software applications -- a la Siebel, SAP and PeopleSoft -- its results might be a closer gauge for those companies than the database kingpin.

"I think it's a more meaningful number, given that they're a 'best-of-breed' company," says Brent Thill, an analyst at

Credit Suisse First Boston

who rates Manugistics buy. "I never really thought that Oracle was a great proxy in the applications business to indicate what will happen with the other applications providers." (His firm hasn't done underwriting for Manugistics or Oracle.)

The other applications providers better hope not. Drowned out by the positive prognostications Tuesday were the blemishes in Oracle's report. While Oracle's core database business was basically flat, its secondary applications business was off 24% worldwide, down 40% in the U.S. alone.

Oracle's results are looked at as an indicator for others not only because of its size, but also because its quarter ends a month before those of most other software makers, and it can provide a possible sneak preview of things to come. But that doesn't always hold true.

Thill points to the fact that at the end of Oracle's fiscal third quarter, when the company had to warn in March that it wouldn't make its earnings or revenue numbers for the period, investors bought into those results as a death knell for software in general. But

Siebel,

SAP and

PeopleSoft all ended up meeting or beating expectations after a

positive report from Manugistics. "Manu is a pretty meaningful metric for the rest of the best-of-breed market because that's how companies are spending," Thill reasons.

Manugistics' quarters also end a month earlier than most others, and its fiscal first quarter, like Oracle's fiscal fourth quarter, ended May 31.

Analysts expect the company to earn 3 cents a share on revenue of $88.9 million, according to

Multex.com

. Many analysts said Tuesday the company should be able to beat those numbers, especially on the revenue side. Those comments pushed its stock up $2.95, or 9.5%, to $33.87.

But just because Manugistics is expected to do well, and its results have been positive indicators in the past, that doesn't mean betting on other specialized software makers is a layup. While the trio of companies mentioned above followed Manu's lead last quarter, many others did not.

"Last quarter, they came out and exceeded expectations and maintained guidance when a lot of other people were blowing up," says Tim Klein, an analyst at

U.S. Bancorp Piper Jaffray

, who rates Manugistics a buy. "So, it's not like they can be viewed completely as a harbinger for the June quarter for everyone else." Still, he says Manugistics can give investors "a better perspective on what's going on in the world of applications license software sales." (His firm hasn't done underwriting for Manugistics.)

Keep in mind, though, that the company is a lot smaller than Oracle. Manugistics is projected to have annual sales of about $400 million, compared with estimates for Oracle to clear more than $12 billion in revenue next year.

"We'll be keeping an eye on Manugistics' announcement on Thursday with interest," says

Dresdner Kleinwort Wasserstein

analyst David Garrity, who rates Manugistics buy. "But I don't necessarily think Manugistics is a strong-enough force to really be influential on the entire sector. I don't think they're of sufficient scale to carry the day." (His firm hasn't done underwriting for the company.)

Garrity also points out that if Manugistics does well in the supply chain management software, that won't mean e-procurement companies like

Ariba

(ARBA)

or

Commerce One

(CMRC)

are going to pull through positively. The companies target different markets, and Ariba and Commerce One had poor results last time around when Manugistics' were positive.

Still, there are enough similarities in Manugistics' general focus and those of larger, specialized software companies to warrant the comparison.

"Obviously, Oracle got everyone pretty lathered up," Piper Jaffray's Klein says. "But in some aspects, Manugistics is more reflective of what's happening in the broader software space."

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