When Information Advantage announced a profit warning for fiscal first quarter 1999 last week, the numbers raised a red flag for the analyst community. The ROLAP vendor’s under performance was the second blot on its copy-book since the $65m acquisition of IQ Software in September last year.
Information Advantage said it expected to see revenues in the range of approximately $12m to $14m and a loss for the April 1999 quarter, when it announces final results at the end of the month. Analysts had expected a profit. The First Call consensus for the quarter had been $0.05. Information Advantage stock immediately took a nosedive to hit a 52-week low on May 4, the day the warning was issued. The stock slump could not have come at a worse time. The company has already set up a poison pill defense against hostile takeovers which had been triggered by an earlier low stock. And, although it said it was not aware of any pending offers, rumors were rife that its market valuation is sufficiently low to make now a prime time for the company to be purchased.
The company’s results are not the first set of disappointing figures from OLAP vendors in 1999: Hyperion, Gentia and Comshare also delivered numbers that were below expectation. But there is some concern that the previously flat but profitable revenue stream IQ Software brought to the table is not proving as profitable as once thought. In the same quarter a year earlier, combined revenues would have been $15.3m and net income would have been $800,000, says Nigel Pendse, a UK business intelligence and OLAP analyst.
This is the second quarter in a row in which Information Advantage has shown disappointing growth. In the fourth quarter ending January 1999, revenues were up 36% to $20.1m on the same period, a respectable increase maybe, but not nearly as large as anticipated. We project that, had the two companies remained separate and continued growing at the rates they recorded in the two quarters before the acquisition, revenue from the quarter would have been $22.4m, rather than the $20.1m actually reported, says Pendse. So, one effect of the merger would appear to be a revenue drop of about 10% in the fourth quarter and maybe as much as 27.5% in the first quarter of 1999.
Company executives blame longer sales cycles on the revenue and earnings shortfall for the coming first quarter. As we have cautioned on numerous occasions, our sales results are influenced by the timing of large contracts and can be concentrated in the final month of the quarter. says president and CEO, Larry Ford. With the long enterprise application project cycles, we had a number of opportunities shift into future quarters, he says.
These ‘days sales outstanding’ issues, or the number of days until the company receives payment for goods, seems to be a recurrent problem for the company. In the previous quarter, Information Advantage blamed lengthy sales cycles for its inability to meet revenue estimates.
If the problem persists, Information Advantage will fail to profit from the revenue growth and market share the IQ acquisition was intended to bring. The company is already being passed by larger, faster growing and younger ROLAP rival, MicroStrategy. And MicroStrategy does not seem to be experiencing the revenue slow-down its rival is suffering.
In its most recent quarter to March 1999, MicroStrategy total revenues showed a year on year growth of 80%. Net income increased from $300,000 in 1997 to $6.9m in 1998 on revenues up 98.5% to $106.4m. In contrast, Information Advantage produced a loss of $5.4m on revenues up 41% to $70.7m for its fiscal 1998. MicroStrategy is clearly looming large. The company already has 6.4% of the OLAP market compared with Information Advantage’s 2.9% market share, according to Pendse. And another poor performing quarter will only serve to widen the gap between the two ROLAP rivals.
