Tumbleweed warns for 4Q, restructures

Citing slumping IT spending and delayed purchasing decisions from customers, Tumbleweed Communications said Wednesday that it would miss estimates for its fourth quarter and will cut 20 percent of its workforce.

Shares in the Internet messaging service company (Nasdaq: TMWD) dropped 70 percent, falling 6.97 to 3.03.

The company now expects fourth quarter revenue to be between $7.5 million and $8.0 million, a jump of between 65 percent and 76 percent year-over-year, but lower than the company's previous expectation for the quarter.

Net loss for the period, excluding charges, will come in between $17.0 million and $18.1 million, as compared to $7.6 million in the fourth quarter of 1999. First Call estimates are for a 29 cent a share loss for the current quarter.

The company also cut its revenue growth target for 2001 to 50 percent to 60 percent over 2000 revenue, down from the previous expectations of 100 percent growth.

In a release, Tumbleweed CEO Jeffrey C. Smith said that, although the company had a good start to the fourth quarter, market conditions changed considerably in December. Accordingly, Smith said that the company intends to make changes to adapt to the new environment.

As a result, the company will slash 20 percent of its workforce and take a one-time restructuring charge in the first quarter 2001.

Smith also said that Tumbleweed will change to a subscription-based pricing model in 2001, under which revenue from new customer contracts will be recognized ratably over the life of the contract.

"We're also interested in this new model because it simplifies the contract process, increases revenue visibility and improves our cash flow," Smith added.