New Era of Networks Inc put its head above the parapet with a profit warning Tuesday and practically had its head chopped off when the markets opened Wednesday. Its stock traded at $16.50, down around 60% or more than $27 on Tuesday’s close. By the end of play it had reached $19.44. Neon said it would lose at least $3.7m and possibly as much as $6.1m on sales of between $25m to $30m. The consensus estimate was for a profit of $3.7m on revenue which at the high end of estimates was around $33.6m.
Some analysts we spoke to claimed that Neon had been unable to steal revenue from the next quarter to make up a shortfall as it had done in the past. Others called it a long overdue correction in the company’s valuation. It has traded as high as $78.38. Credit Suisse First Boston said thatsome deals had slipped as new hires increased expenses and infrastructure costs. More interestingly analysts got a sense that Neon is not getting enough return from its relationship with IBM to offset these new burdens. Neon insiders were said to be taking the opportunity to buy as much stock as they could because it is trading so cheaply. Neon’s competitors were understandably gleeful. Neon just blew up, one CEO enthused.
