New Era of Networks shares tumbled $2.63, or 27 percent, to a 52-week low of $6.81 Wednesday after several analysts downgraded the stock in the wake of its controversial third-quarter earnings report.
New Era of Networks (Nasdaq: NEON) a profit of 8 cents a share on sales of $55.2 million in its third quarter.
However, analysts were disturbed by the company's practice of selling software to companies in exchange for equity sales and then booking the sales as non-cash revenue.
The "transactions effectively include nonmonetary sales of our software and services for equity securities of the investees and for software and services of other vendors," New Era of Network's filing said.
CEO Rick Adam said that cash had changed hands in these transactions, and it would be incorrect to refer to them as merely non-cash transactions. He added that the company was merely following generally accepted accounting standards in the way it booked the transactions.
On Wednesday, SG Cowen cut the stock from a "buy" rating to "neutral" while Gerard Klauer Mattison and Prudential Securities cut the stock to "neutral" and "hold" recommendations, respectively.
In a conference call with investors, Adam said he remained comfortable with the company's outlook for the fourth quarter and for 2001 and predicted continued strong revenue streams.
The company expects to post fourth quarter revenue of $59 million, up from $55.2 million in the third quarter.
Analysts have become concerned that third quarter revenues were boosted by up to $10 million in non-cash revenues after the company took strategic stakes in companies that it sold software to. Without the deals, the company may have missed its revenues targets, they said.
First Call Corp. consensus expects New Era of Networks to earn 11 cents a share in its fourth quarter.
The stock moved up to a 52-week high of $96.25 in February before falling to Wednesday's low.