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Macromedia stock plummets

Shares of Macromedia plunge 31 percent in trading after the company announces unexpected losses.

Shares of Macromedia (MACR) plunged 31 percent in trading today after the company announced unexpected losses.

The company's stock fell to 9-5/16 a share at the close, down 4-3/16 from the previous day's close of 13-1/2 a share.

Macromedia, which announced its third-quarter results after the markets closed, reported a net loss of $2.4 million, or 6 cents a share, for the period ending December 31, compared with net profits of $7.2 million or 18 cents per share last year.

The company fell far short of Wall Street?s estimate of a quarterly profit of 14 cents a share, according to First Call. Revenue for the quarter was down 9 percent to $28.1 million, compared with $31 million for the same quarter last year.

"It was a big disappointment for everyone because for the past eight quarters they have at least met expectations," said Vincent Turzo, an analyst at Jefferies & Company in San Francisco. "[On Friday] the stock will certainly react negatively."

The company attributes losses to a 60-percent price cut for its Authorware Interactive Studio software. Though unit sales increased, they failed to generate enough volume to make up the difference in production costs, said Bud Colligan, company chairman. (Colligan is also a board member of CNET: The Computer Network.)

Sales of Director, a Web publishing tool, fell due to anticipation of a new version, he added.

Analysts must decide if Macromedia's problems are merely part of a product-cycle issue, or if the company's ability to maintain its place in the multimedia market is gone.

"Director is still a very important product for them, and they were clearly a part of the first wave in developing multimedia CD-ROMs," Turzo said of Macromedia. "But their tools and products will probably not end up dominating."

The company also attributed its losses to slowing European sales. Revenue in Europe made up 45 percent of company earnings.

"They had Freehand in English and German and it was doing well during the quarter, but it would have helped them if it had been in more languages," said Jefferies analyst Kevane Wong.

Macromedia will add French and Italian versions this quarter, he noted.

In October, Macromedia began shipping FreeHand Graphics Studio 7 for Windows 95, NT, and Macintosh.

But the fact that Macromedia received 60 percent of its revenues from Macintosh-based products during the quarter, may mean it is hitched to a falling star.

A year ago the company received 70 percent of its revenues from Macintosh products.

"You have to take Apple?s future into account and the uncertainty around it, especially for the first-time consumer," Wong said.

Macromedia has not been idle since the end of the quarter. Earlier this week the company announced the acquisition of Futurewave and its vector-based animation tool and player. The products have been renamed Macromedia Flash and Shockwave Flash, respectively.

But Turzo said the company still needs to take additional steps for its future.

"Step one: They need to cut expenses and cut them fast," he said. "Step two: Figure out where the revenues will be in the next several quarters. If they can?t do that, then they could show losses in March as well."