Updated from 10:06 a.m. EST
Shares in software company
were pounded Monday after the company said that it is revising its reported revenues downward for the last two years and that the profit it reported for 1999 is now a loss.
MicroStrategy plunged 140 points, or 62%, to close at 86 3/4 on Monday. The selloff eliminated about $11 billion of the company's stock market value, slashing it to $6.8 billion from $18 billion on Friday.
MicroStrategy, which provides software for e-commerce companies, said it was changing the method of reporting revenue from its contract because of "revenue recognition" guidance the
Securities and Exchange Commission
offered in December on the accounting of specific kinds of contracts.
The Vienna, Va.-based company said it would spread recognition of revenues from some software sales with service contracts over the life of the contracts. This will defer revenues for some complex contracts. The company had previously split its revenues into software and services component, recognizing a good portion of the revenues up front.
MicroStrategy said it would reduce its 1999 reported revenue to $150 million to $155 million, from $205.3 million. It also said it would report a loss of 43 cents to 51 cents a diluted share for 1999, rather than earnings of 15 cents a share. MicroStrategy said correspondingly that its deferred revenue at Dec. 31, 1999, would increase to $66.5 million to $76.5 million, from $16.8 million.
The company said it would also reduce its reported revenues for 1998 to $95.9 million to $100.9 million, from $106.4 million, and net income to 1 cent to 4 cents a share, from 8 cents.
"Over the last 18 months, as MicroStrategy has entered new markets, our business model has evolved very rapidly," Michael J. Saylor, president and chief executive, said in a statement. "As a result the business relationships we have entered into have become more financially complex and include both licenses and interrelated services.
"We want to assure investors, customers and partners that we are working proactively with our auditors to comply with the evolving accounting practices for the software industry," he said. "There is no material change in our net cash flow and the amount of revenue we expect to recognize, and we continue to be well positioned to take advantage of opportunities in the e-business software and personalized wireless content markets."
The company said the revised figures will be filed with the SEC by the end of the month.
MicroStrategy isn't alone in having to restate its earnings based on the guidance the SEC offered in December. For example, retailer
was forced to revise its figures as well, and filed its changes with the SEC Monday.
MicroStrategy's problems may be a harbinger for other Web companies. "I think revenue recognition is one of the key issues that will frame the stock market and in particular Internet-related stocks for the next 12 months," said Thomas Neuhaus, analyst with
Scott and Stringfellow
. "I think the Street in general will be more wary of revenue recognition from all Internet companies" because Web companies have tended to be more aggressive in reporting their revenue.
Neuhaus said he is re-evaluating his buy rating on MicroStrategy. "We think the company will have to report a couple of good quarters of growth before investors will be comfortable with the stock again," he said. His firm has not done any underwriting for MicroStrategy.