Documentum Slides on Rumors of Earnings Warning

The stock gives up 15% the day before it reports earnings.
Author:
Publish date:

SAN FRANCISCO --

Documentum

(DCTM)

shares continued to spiral lower on speculation that the Pleasanton, Calif.-based software company will guide analysts' earnings expectations for future quarters lower when it reports fourth-quarter earnings tomorrow.

"Though we feel comfortable with our estimates for Q4, there are rumors on the Street that the company will reduce guidance for 1999," said

Friedman Billings Ramsey

analyst David Hilal, whose firm has no underwriting relationship with Documentum. He maintains a buy on the stock and says he forecasts the company will earn 24 cents a share, even with

First Call's

nine-analyst consensus estimate. That would bring 1998 earnings to 76 cents.

Given that 1999 is generally expected to be a difficult year for software companies, as businesses may slow new software spending to deal with year 2000 bugs, Hilal says he would not be surprised if Documentum also offered a more cautious view for 1999. However, he says he would be surprised if any news were extremely negative.

Analysts say the stock has been inching lower since

Morgan Stanley Dean Witter's

investment conference during the first week of the year. Documentum presented at the conference. But analysts note that the downturn really started to heat up yesterday morning after one Wall Street firm made a call to its salesforce.

If the stock continues to weaken, Hilal says it may soon hit levels that provide investors with a good buying opportunity.

Documentum shares ended down 4 3/16, or 15%, at 23 7/8 after touching their lowest level since mid-October. Volume was heavy with 2.8 million shares changing hands.

More Earnings

Next up in the high-tech earnings parade Thursday are

IBM

(IBM) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

. Both companies have had strong run-ups recently and surged early today before getting caught up in the late-day selling.

IBM closed up 2 1/4 at 194 1/2 but was unable to breach the 200 level as it reached a high of 199 1/4 earlier this afternoon. It has rallied from a low of 162 1/2 on Dec. 15. Sun Microsystems has surged of late as well, climbing from 72 1/2 Dec. 10 to a high of 115 3/4 today. It ended the day down 1/16 at 105 3/8.

Analysts have been touting both stocks in advance of the earnings. In a report released today, Morgan Stanley Dean Witter reiterated strong-buy ratings on both companies. IBM is expected to report earnings of $6.55 per share, while Sun is expected to report earnings of 66 cents a share, according to First Call.

Double Take for DoubleClick

Internet advertising company

DoubleClick

(DCLK)

was one of this morning's big winners following its earnings announcement. But late profit-taking erased all of DoubleClick's gains and left it slightly lower on the day. DoubleClick closed 11/16 lower at 87 3/4, a full 25 points off its intraday high of 112 3/4.

The early gains were spurred by the earnings and announcement of a crucial deal with the

AltaVista

Web site owned by

Compaq

(CPQ)

.

DoubleClick beat analysts' estimates, as reported by First Call, by a penny, losing 25 cents per share instead of the predicted 26 cents. But the big deal was re-signing AltaVista. That's because over the first nine months of 1998, advertising sales on the AltaVista Web search site and portal accounted for 48% of DoubleClick's revenues -- and because AltaVista had the option to cancel the relationship with DoubleClick on 90 days' notice.

Now the companies are committed to one another for three more years. And DoubleClick CEO Kevin O'Connor says the new agreement is on "roughly comparable economic terms" with the original, and AltaVista can back out only under "catastrophic" circumstances, such as DoubleClick ceasing operations. So investors seem less spooked by the idea that DoubleClick might lose the major customer on which so much of its revenue depends. The news is "absolutely monumental," says analyst Ken Winston of

Needham & Co.

, which has no underwriting relationship with the company: "It was the one investor issue that I think had a significant effect on the valuation of the stock."

Of course, valuation is an issue with Internet stocks in another fashion. Winston rates the stock a buy, the firm's second-highest rating. The only reason it's not the highest rating, a strong buy, is "there is some valuation risk with all Internet stocks right now," he says.

-- Staff reporter George Mannes contributed to this story.