Updated from 12:58 p.m. EDT
For two weeks, shares of
have slid, even as the company said sales were strong and looking stronger for the end of the quarter.
On Monday, they plunged after the Newton, Mass.-based maker of software for electronic commerce said sales of its core product through indirect channels would severely disappoint.
"The market seemed to know something," said Damian Rinaldi, analyst for
. (His strong buy rating is under review, and his firm has done no underwriting for Allaire.) "The checks we did suggested that they were going to be on track."
For the third quarter ended Sept. 30, the company now expects revenue of between $28 million to $32 million, compared with $33.3 million in the second quarter and with $15.1 million in the third quarter of last year. The company expects a net loss of 5 cents to 20 cents a share in the third quarter, compared with net income of 6 cents a share in the second quarter and a net loss of a penny a share in the third quarter of 1999.
Analysts surveyed by
First Call/Thomson Financial
had predicted earnings of 7 cents a share for the third quarter.
Allaire's stock was trading down $7.06, or 40%, at $10.48, closing in on its 52-week low of $9.86 and well off the 52-week high of $94.12 it reached in March.
Allaire makes ColdFusion, software used to build Web sites for e-commerce. In a move away from its focus on development tools, the company has been expanding its offerings with Spectra, a $70,000 package of software for content management and e-commerce.
The company had expected to close 20% of its sales in the quarter's first month, 30% in August and 50% this month, said Jeremy Allaire, its chief technology officer, citing figures that are typical of the software industry.
Just two weeks ago, two analysts said, company officials told Wall Street that sales for the first two months were strong. Rinaldi said he had even called some of the company's distributors to verify progress.
Still, "word was that the quarter was back-end loaded," said Paul Krieg, analyst for
, who rates the company's shares a buy and whose firm has done no underwriting for the company. Seeking to explain the drain on the stock price during the past two weeks, he said some investors must have taken that reiteration of widely accepted industry norms as code that the quarter was troubled.
But Allaire, the technology officer, said in a telephone interview that the company was taken by surprise as late as Wednesday. That is when sell-through reports, which indicate the progress of deals made through indirect distributors, were made available to the company, he said. Allaire counts on these distributors to handle sales of less than $10,000, which account for 60% of Allaire's revenues.
On Sept. 14, company officials conferred with the internal sales force, he said, confirming a second disappointment that analysts would find even more disturbing. Not only had sales of Spectra been pushed into future quarters, but sales of ColdFusion had fallen below expectations as the product neared the end of its upgrade cycle.
"I had looked at them as in transition from one product to multiple products," Krieg said. "I was surprised that weakness really came in the older product lines."
Allaire said the release of new products, timed to coincide with "demand regeneration programs," would turn the company's fortunes.
But analysts seemed twice shy.
"It's going to take more than a quarter to right the course," Rinaldi said. "You can't sort of put a Band-Aid on being late in the product cycle. They're facing some pretty significant challenges from an internal execution standpoint."