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Loudcloud dips on downgrades

Analysts are unsure when things will improve for the Internet services company, whose shares are sinking a day after the company reported a dismal first quarter.

Shares of Loudcloud sank 25 percent by market close, a day after the company reported a dismal first quarter. Wednesday, analysts downgraded the stock, saying they have no clear idea when things will improve for the company.

Loudcloud, whose chairman is Netscape founder Marc Andreessen, sells managed Internet services that help companies do things such as automate Web site management. Tuesday the company reported a net loss of $60.3 million, or $1.25 a share, for the quarter, compared with a net loss of $58.8 million, or $1.90 a share, in its preceding quarter.

The stock closed down 83 cents to $2.55.

The Sunnyvale, Calif., company also announced it would take a charge of up to $28 million in the current quarter because of a previously announced restructuring.

The company reduced guidance for the upcoming year, saying it now expects to post revenue of $53 million to $57 million and a loss of between $129 million and $132 million before special charges.

Loudcloud cited the generally flagging economy and the dot-com downturn as reasons for the shortfall.

Wednesday, analysts at Goldman Sachs and Morgan Stanley, the two investment banks that were the lead underwriters for Loudcloud's public offering, lowered their ratings on the stock.

"Right idea, wrong time," wrote Morgan Stanley analyst Jeffrey Camp.

"We see a continued slow economic environment, a protracted enterprise sales cycle and difficulty in managing operating expenses as risks," Camp wrote. "Visibility is limited and the funding situation is questionable. Until these issues are resolved, we think (Loudcloud's) shares are unlikely to perform well."

Camp lowered his rating on the stock from "outperform" to "neutral."

Goldman analyst Matthew Janiga also downgraded the stock to "market outperform" and took it off the recommended list. But he noted that the downgrade was "market related, not company specific."

"Loudcloud's results are those of a solid young company weathering an extremely difficult market environment," he wrote in a research note. "While we believe the company has built a robust pipeline of enterprise deals, extended sales cycles may limit the close rate over the near term."

Janiga pointed to Loudcloud's strong corporate customer base, which rose from 44 percent of revenue in the fourth quarter of last year to 55 percent of revenue in the first quarter. While the turnover from dot-com clients to corporate business will hurt sales figures in the short term, it should result in "higher-quality revenues and a more sustainable long-term growth pattern," he wrote.