Tibco Software Results Present a Buying Opportunity

NEW YORK (TheStreet) -- One earnings quarter never makes or breaks a company, at least not one worthy of your investment. Yet somehow the Street seems to believe that Tibco Software (TIBX), which soared to a new 52-week high following a strong September quarter, should pick up its tent and vanish after its latest results.

This pretty much sums up the narrow-minded thinking that has caused investors to miss out on some pretty strong opportunities in the software industry, where names like Oracle (ORCL) and Adobe (ADBE) did well despite constant bearish sentiment.

Tibco has a well-deserved reputation in areas like business optimization and process management. I believe the stock's recent 14% decline represents an overreaction. Management didn't issue glowing first-quarter guidance, relative to the outlook issued by Oracle; I believe Tibco's caution has more to do with lack of visibility than lack of confidence. Opportunistic investors can still do well here.

Before we get ahead of ourselves, let's not act as if the long-awaited return of IT enterprise spending has materialized. Results from Cisco (CSCO) and several other enterprise-dependent giants like IBM (IBM) and Red Hat (RHT) shot down that notion a while ago.

With fourth-quarter revenue climbing 6% year over year and 10% sequentially, I believe Tibco continues to do an adequate job of balancing growth expectations with meaningful share gains. What's more, Tibco is doing this in an environment where the Street is ready to applaud low single-digit revenue performances by Oracle.

On the flipside, Tibco's 3% license revenue growth was a little light. But management continues to offset this weakness with meaningful contributions from the service and maintenance segment. The problem, though, is that investors aren't always willing to reward software companies solely based on lower-margin service/maintenance performances, especially when management's outlook disappoints.

The company said it expects first-quarter net income to be between 17 cents and 18 cents per share, which is down (according to some estimates) by as much as 19%. Other estimates project revenue to be in the range of $247 million to $253 million, which is lower than consensus by more than 3%.

While this may be "fairly" interpreted as a sign that Tibco expects some difficulty to close deals and/or steal business from IBM and Oracle, I don't believe that the guidance is the sort of "company-killing setback" that the Street is making it out to be. Let's not discount some other possibilities that might have caused the tepid guidance.

First, while Tibco has fought an arduous battle to build itself into a formidable cloud operation, the company is still in the midst of restructuring. I'm not excusing the weak guidance. But this is not like, say, the June quarter where the company inexplicably underperformed most of its projections, losing business to Salesforce.com (CRM) due to price.

Secondly, management has been working to grow Tibco's capabilities in areas like real-time business intelligence, visualization and complex event processing. These are technologies targeted to capitalize on the growth of big data. So while critics are correct to point out that the company is still experiencing some margin weakness, that's an expected consequence of changing models.

Last, and certainly not least, Tibco is not the first company to endeavor to change its business. To the extent that management can build its capabilities in areas like integration, I expect Tibco to emerge from a much stronger position given the dominant results we've seen from Adobe's changeover.

It goes without saying that Tibco is far from a finished product. But there's no denying that management's recent investments in cloud and data analytics have begun to pay off. I'm maintaining my 7% long-term revenue growth rate estimate, which would outperform both IBM and Oracle. And I believe this recent dip makes Tibco a great buying opportunity for investors looking for a strong outperformer in software for 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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