Broadvision misses estimates, sees little growth ahead

Broadvision (Nasdaq: BVSN) fell short of Wall Street's profit expectations in the fourth quarter, sees little revenue growth in the first quarter, but stuck to its earlier forecast of full year revenue growth as high as 52 percent.

In a Thursday conference call with analysts, the vendor of e-business software and services predicted first quarter revenue of $137 million to $140 million, slightly higher than the company's fourth quarter revenue of $136.9 million. Analyst consensus predicted revenue of $137.3 million for Broadvision's quarter ending in March 31, according to earnings tracking firm First Call.

Shares of Broadvision traded at $12 in afterhours activity on the Island ECN, following the release of quarterly results. Broadvision fell $2.0625 to $14.875 in Thursday's regular trading ahead of the earnings report.

Broadvision's forecast reflects caution about the economy in the first half of this year, as well as a recognition that the company is now large enough to be affected by industry-wide patterns, CFO Randall Bolten told analysts. The first quarter is the slowest part of the calendar year for many enterprise software companies.

Business should pick up in the second half, Bolten said, adding that Broadvision still expects total 2001 revenue of $600 million to $630 million, or 45 to 52 percent annual growth. "We remain very positive about the overall demand for our applications products," he said.

However, that demand may have fallen short of expectations in the fourth quarter. Although Broadvision's fourth quarter revenue slightly exceeded First Call's estimate, it wasn't enough to pay for the company's increased spending.

Broadvision reported fourth quarter net income of $4.5 million, or 2 cents per share, excluding amortization and acquisition-related charges. That was less than half of the published forecast; First Call's survey of 27 analysts predicted a profit of 5 cents per share for Broadvision's December quarter.

Company executives blamed the earnings shortfall on high costs for sales and marketing, which consumed 46 percent of Broadvision's revenue in the fourth quarter, compared to 37 percent in the third. Bolten cited four cost areas:

Headcount.

Broadvision not only increased its workforce by 14 percent from the September quarter, but added most of those workers near the start of the fourth quarter. That exaggerated the sequential comparison in salary costs, because most of the third quarter's hires came near the end of the quarter. About $4 million in unexpected salary and benefit costs stemmed from accelerated hiring, Bolten said.

Sales commissions.

A large percentage of big deals were closed by Broadvision's top sales people, which led to an unusually high number of commissions at the top rate, Bolten said. The company also had an surprisingly good quarter for sales overseas, where commissions are higher. Those factors boosted sales compensation $3 million beyond Broadvision's original estimates.

Growth-related inefficiency.

Broadvision's rapid expansion earlier in the year strained the company's cost controls and led to expense overruns, confusion over purchasing procedures and other problems. That added $2 million to $3 million on top of what Broadvision expected, Bolten said.

New offices.

Several regional offices were opened at once, costing Broadvision $1 million more than forecast, Bolten said.

"We are pleased with our performance during the fourth quarter," CEO Pehong Chen told analysts.

About 59 percent, or $80.9 million, of Broadvision's fourth quarter revenue came from software licenses, and the remainder from services. License revenue increased 127 percent year-over-year, Bolten said. Services increased 260 percent to $56 million.

Broadvision might have been expecting fourth quarter revenue that didn't materialize, said Assia Georgieva, analyst with Ryan, Beck & Co. "It was probably a case of them expecting somewhat higher revenues, and therefore hiring a little more aggressively," Georgieva said.

Because enterprise software contracts typically close near the end of a quarter, companies such as Broadvision were surprised when sales didn't materialize in the last two or three weeks of December, Georgieva said. "I think this is more of a macroeconomic situation, rather than a company-specific situation," she added.

The more important factor is the company's full year outlook, which won't become clear for at least one quarter, the analyst said. "If they remain comfortable with those 2001 revenues of $600 million-plus, that would be a positive," Georgieva said.

Analysts were cautious about Broadvision prior to the earnings report. Robinson-Humphrey analyst William Chappell last week reduced his 2001 estimates for Broadvision. Earlier this week, Moors Cabot analyst Roy Lobo did the same earlier this week.

Other analysts downgraded Broadvision in December.

• BroadVision stumbles on downgrade
• Broadvision downgraded
• BroadVision gets S&P 500 bump>