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Kana falls on earnings miss, analysts pan stock

Kana Communications, Inc. (Nasdaq: KANA) was off 31 percent Thursday as analysts downgraded the stock on the heels of its disappointing fourth-quarter results.

Shares in the provider of enterprise relationship management software were off $2.94 to $6.5, far below its 52-week high of 175.5.

The company reported a loss of 37 cents a share for the quarter, below First Call's consensus estimate of a loss 20 cents a share, and down year-over-year from 21 cents a share.

Fourth quarter revenue was $42.4 million, a 557 percent increase over the prior year's. But the company disappointed analysts with its services revenue of $13.7 million, down 18.9 percent sequentially from $16.9 million.

For 2000, Kana's revenues were $119.2 million, up 748 percent over the prior year's. Pro forma loss per share was $1.09 a share for 2000 compared to $1.27 for the prior year.

Goldman Sachs analyst Lilly Bahramipour dropped Kana from the "recommended list" Thursday and rated it "market outperformer." She lowered estimates into 2001, and now expects the year's growth to be around 55 percent, down from 70 percent.

Bahramipour cited the company's fourth quarter shortfall and reduced guidance for 2001 as reasons for the downgrade, but added on a positive note that she still expects operating profitability by the fourth quarter of 2001.

"While we continue to believe that Kana is well-positioned in its market with a broad customer management suite, we are concerned over lack of visibility and the company's ability to overcome fundamental issues near-term in a less favorable market environment."

The company cited execution problems in its professional services organization and higher than expected costs. Management also said visibility was decreasing with growing concerns about IT budget cuts. Kana has begun to streamline its business with headcount reductions throughout the organization. "As a result, we have modeled declining operating expenses and we believe that headcount should stabilize in 1Q," Bahramipour added.

USBancorp Piper analyst Sarah Bernstein also lowered her rating to "buy" from "strong buy" and cut estimates.

The analyst lowered her 12- to 18-month price target to $15 from $60 to reflect the newly lowered estimates and current market conditions.

ING Barings analyst George J. Godfrey reduced his rating to "hold" from "strong buy" on the company's weak quarter and even weaker outlook into 2001.

Godfrey said concerns about the company's cash burn rate in the face of a slowing economy, increasing competition from Siebel (Nasdaq: SEBL) in 2001, and the unexpected departure of chairman and CEO Michael McCloskey were also reasons for the downgrade.

Kana also announced some management shifts with its fourth-quarter results; David Fowler is new president and Nigel Donovan new COO following the departure McCloskey, for medical reasons.