Sybase boosted despite bad news

Shares of the database maker jumped by as much as 15.1 percent today, despite a weaker-than-expected fourth quarter earnings report. Analysts say investors may feel Sybase already has hit rock-bottom, and are betting on the company's claims that it will achieve profitability later this year.

Sybase shares rose as high as 8-1/16 in early trading, up from its close of 7 yesterday. The stock has taken a beating since last October, when it traded above 23 a share.

"Until investors thought all the bad news was out, there was a drag on the stock," said Brian Skiba, an analyst with Lehman Brothers. "To some degree, the bad news flow has bottomed out."

Skiba added that, given the conservative tack the company currently is taking in its effort to return to profitability, which includes layoffs and expense reduction, "no one would argue that the stock was overpriced today."

Sybase is trading around .3 times its current revenues, while many software companies are trading at 5 to 10 times their revenue.

Another analyst, who asked not to be named, said Sybase's comments regarding its projections of a profitable second quarter and its announcement of a staff reduction aimed at containing costs are definite factors driving the stock up today.

"They have proven in the past they can be profitable, but they haven't shown growth," the analyst said. "To have positive valuation, they need to show growing margins and show growth on top line. They haven't done that for 12 quarters."

The analyst added that downsizing likely will help Sybase become profitable, but said the move didn't warrant a buy recommendation on his part.

Yesterday, Sybase reported a fourth-quarter net loss of $25.5 million, compared with a profit of $5 million reported a year earlier. The company's revenues fell to $223.2 million in the quarter, down from $267.8 million a year ago.

Sybase chairman and chief executive Mitchell Kertzman said yesterday that his company is aiming for profitability in the second quarter and throughout the rest of fiscal 1998. (Kertzman is a board member of CNET: The Computer Network.)

Skiba, however, said he doesn't expect the company to obtain modest profitability until the third quarter. He estimated a loss of 10 cents in the first quarter and a 2-cent loss in the second, but projected a 3-cent profit in the third quarter and an 8-cent profit in the fourth.

The company's licensing revenues fell to $110.5 million, down 31 percent from the previous year. Its server software sales declined year-over-year, as well as from the previous quarter.

"The database market, in general, is in a lull," Skiba said. "I don't think, however, that anyone believes this lull will last forever."

Indeed, research firm IDC expects some recovery in 1999.

Sybase's drop in server revenues was amplified by problems it encountered as a result of having to restate its financial results for the first nine months of fiscal 1997. The company blamed the restatement on a handful of executives in Japan who allegedly disregarded the company's policy for booking revenue.

Licensing revenues from the company's tools business also was down over the year, but was up from the previous quarter. That sequential increase was Sybase's first since the third quarter of 1996.

"They have some new tools out, and some new versions of tools that drove that," Skiba said. "I expect some similar activity with [a Sybase competitor] Oracle."

The company's services sales likely will continue to be strong, Skiba said, but he noted that Sybase's stated goal of shifting its current 50-50 ratio for licensing and service revenues to one in which services account for 40 percent and licensing 60 percent likely will not happen for another two to three years.

Skiba cited sluggish database sales in general as a factor holding back a quicker realignment in Sybase's revenue ratio.