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PeopleSoft Sees Earnings In Line Despite Revenue Shortfall

The software concern says its combined service revenue with the soon-to-be-acquired Vantive will fall sequentially.

Updated from 8:08 a.m.

Enterprise software maker



said Thursday that it expects to report fourth-quarter operating earnings of 2 cents to 4 cents a share, in line with expectations, though service revenue should fall.

The Pleasanton, Calif.-based company also said it would take charges of as much as $70 million on its merger with



Shares of the Pleasanton, Calif.-based company were up 2 1/4 to 20 3/8 in early trading Thursday. (PeopleSoft ended Thursday up 3 7/8, or 21%, to 22.)

For the fourth quarter ended Dec. 31, 1999, PeopleSoft expects that combined service revenue could be down as much as 5% from third-quarter levels, mostly because of lower licensing activity. This decrease will offset an anticipated increase in licensing revenue for the quarter of 35% to 40% from the previous quarter, the company said.

The earnings-per-share range is in line with the 2 cents projected by the 17 analysts polled by

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. The projection excludes charges of $50 million to $70 million in connection with the Vantive deal, and partly offsetting gains from the sale of equity investments in the range of $45 million to $50 million.

Specifically, fourth-quarter license revenues for the PeopleSoft core enterprise software business are expected to grow 30% to 35% sequentially, while revenues for Vantive's CRM business should grow 50% to 60%, also sequentially.

The software revenue numbers were a pleasant surprise, according to Wall Street analysts. "Wall Street will focus on the software revenues and sequential growth the company was able to turn in," said analyst Robert Austrian of

Banc of America Securities

. "The preliminary read is that they have done nicely better than expected." After all, results for the third quarter ended Sept. 30 were vastly underwhelming -- compared to the year-earlier quarter, overall revenue was down 13.7% and net income and net income per share were down a staggering 88%.

Austrian rates PeopleSoft market performer and his firm has done no underwriting for the company.

One factor holding investors back from fully embracing today's news is the apparently poisonous effect of the shortfall in combined service revenue. A question the company will need to address is how a modest reduction in services could offset a seemingly dramatic increase in software revenue.

All preliminary results include results of Vantive.

Final fourth-quarter results are set to be released in early February.

Companies in the enterprise software sector have suffered for the last year. PeopleSoft is down almost 5% in the last 12 months, even as the


rose an astonishing 86% for 1999.