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2HRS2GO: MicroStrategy still the same business

Nobody wanted to hear about accounting problems.

Nobody wanted to find out a supposedly profitable e-business software firm turned out to be another money loser last year.

Nobody wanted to learn the company will also miss the consensus estimate for the current quarter.

Nobody wanted to touch MicroStrategy (Nasdaq: MSTR) this morning.

Have an opinion on this?

Shares of MSTR shed more than half their value today after the vendor of business analysis software and services restated results for the last two years and said First Call's consensus forecast of a penny per share earnings in the first quarter is too high. CEO Michael Saylor saw the value of his holdings plunge by nearly $5.5 billion, which just might delay his plans for Internet U.

Or maybe not, since Saylor's 55 percent stake of MicroStrategy is still worth more than $4 billion.

That's something people should keep in mind: despite all the gnashing, thrashing and bashing of MicroStrategy, the company remains the business it was last week. Maybe not as wildly overvalued as it was, but still the same operation.

Forbes two weeks ago raised flags about MicroStrategy's accounting. At the time, the company defended its practices; perhaps today's market reaction represents a welcome comeuppance for Saylor's arrogance.

But the MicroStrategy CEO is hardly alone in the tech industry when it comes to playing P.T. Barnum. And MicroStrategy isn't the only company that's changed its business model in recent times -- most sellers of business software have moved from pure license fee sales to a combination of software and services such as consulting and application hosting.

"Today's announcement doesn't reflect well on their credibility, but on the other hand, we've seen other companies do the same kind of thing," notes Jon Moody, analyst with BB&T Capital Markets. "My inclinations are to ride this one out, if I'm a long term shareholder."

Granted, MicroStrategy should have figured out the accounting change last year when it started signing these combination software/service/network deals, but some accounting guidelines didn't change until very late last year. In any case, much of the blame ought to lie with PriceWaterhouseCoopers, which gets paid to watch MicroStrategy's books.

"A lot of that probably reflects on PriceWaterhouse," Moody says. "They're the auditor and they've been signing off on everything the last two years."

In any case, this is not Al Dunlap's Sunbeam (NYSE: SOC). MicroStrategy isn't recording non-existent revenue. Its rate of contract wins won't change merely because the company now recognizes revenue over the lifespan of deals instead recording most of it up front.

Forcing MicroStrategy to defer money makes it harder to produce impressive-looking growth rates. On the other hand, it makes the bottom line more predictable, because the revenue stream becomes smoother. While most enterprise software vendors charge through frenzied contract closings in the last two weeks of every quarter hoping to meet Wall Street's targets,

"The upside is, you can enter a quarter with pretty good visibility," Moody says.

Some folks might be worried because MicroStrategy has to forget about a secondary offering for now. That was supposed to fund the growth of the portal, among other things.

I wouldn't worry about it much. Judging by the sample screen available on the website, it seems like just another information delivery service, and certainly nothing expected to make a deep impact on MicroStrategy's top or bottom line anytime soon.

MicroStrategy was due for a slide anyway. No software stock can long sustain a price-to-revenue multiple of 80 times last year's revenue. Now MicroStrategy just trades on roughly the same level as an Oracle (Nasdaq: ORCL) or Siebel Systems (Nasdaq: SEBL).

And that's not bad company. 22GO>