2HRS2GO: Sagent falls in MicroStrategy-like proportions

Prosecution Exhibit#59221 in Cardiologists vs. Enterprise Software Cos.: Sagent Technology (Nasdaq: SGNT).

Businesses use Sagent's products to analyze customer data. Like other companies in the various and related fields of data analysis, mining and warehousing, Sagent's software usually sells through large contracts, often in the millions.

The nature of enterprise software lends itself to large corporations -- Remember the "I used to be a Big Guy" advertisement from Oracle (Nasdaq: ORCL)? -- but that also means if you miss one or two deals, your quarter could be in the tank. Because corporations typically don't sign deals until close to the end of a quarter, business software vendors are always walking a taut wire when it comes to meeting Wall Street's expectations. Sometimes, they'll blow out the numbers, but you're going to have those quarters when a couple of deals are delayed.

It happened to Oracle last fall, it sort of happened to Sagent in this quarter and every time it happens investors get heart attacks and accuse management of incompetence. Sagent's stock is down 61 percent this afternoon.

Have an opinion on this?

Sagent's troubles also hit that dreaded Double R enterprise software theme of the moment: Revenue Recognition. The company actually signed the aforementioned deals for a total of $3.5 million, but auditors told Sagent not to record the revenue until the second quarter. You can thank MicroStrategy (Nasdaq: MSTR) for making every accountant cautious about these enterprise contracts, which typically blend software and services these days. Incidentally, Sagent and MicroStrategy share the same auditor in PriceWaterhouseCoopers.

Analysts from the likes of Donaldson, Lufkin & Jenrette and Chase H&Q -- both downgraded Sagent following the quarterly report -- are troubled that it took outside parties, rather than Sagent's own internal accountants, to flag those contracts.

But I'd wager most enterprise companies book revenue the same way. Given that Wall Street measures stocks relative to each other, you have to ask if Sagent is so much worse than its competitors.

I doubt it. And I'll say the same thing I said about MicroStrategy last month: this business hasn't changed. Sagent still sells the same products to the same customer base in the same market that has the same growth prospects as it did last week.

And like a good neighbor, State Farm is ... gone. Unfortunately for InsWeb (Nasdaq: INSW), growth prospects look much different than they did a week ago. INSW shed 55 percent of its value today after the insurance website said its largest customer, State Farm Insurance, won't be using the service after May 1. State Farm generates 30 percent of InsWeb's business, so InsWeb has plenty of ground to make up.

State Farm's general policy is not to comment on relationships with specific vendors, but a spokesman for the insurance company noted that the company has plenty of other aggregators and partners, not to mention its own website. You have to wonder what the nation's largest property insurer sees in NetQuote, Quicken.com, AutoAdvantage and various Microsoft websites that it doesn't see in InsWeb.

One thing that's worth noting for at least a couple of those other websites: they're part of a larger network of services. Vertical portals are a hot strategy, but can something as specific as an insurance quote aggregator survive on its own rather than being a larger suite of financial services? If anything, the most successful e-commerce sites seem to be broad department store models (Amazon.com) rather than specialty retailers (Barnesandnoble.com).

Getting back to enterprise software, SAP (NYSE: SAP) saw its license revenues barely grow at all. For all of Larry Ellison's bluster, he's right about one thing: companies would rather get something that installs rapidly for the Web rather than go for a clunky back office software installation that takes years.

SAP is pushing its mySAP.com website, but the competitors are more aggressive and their numbers are growing. In the old ERP says, SAP had a small and relatively stable array of competitors with Baan (Nasdaq: BAANF), PeopleSoft (Nasdaq: PSFT) and later Oracle. Back then, SAP could win purely on the brute engineering strength of R/3.

But in the Internet with its much wider field of players, some of whom have technology that's not only good, but also built to more easily scale with the Web. Pure engineering won't win anymore -- SAP needs to move faster and market much more aggressively. So far it hasn't, and the results are showing in the company's lackluster sales.

A certain school of thought contends the recent successes of Advanced Micro Devices (NYSE: AMD) are coming at the expense of Intel (Nasdaq: INTC), but I wonder if that's true after seeing Intel's results in the latest quarter. After all, both companies blew out their numbers by large margins.

In a market like the current one, AMD doesn't have to seize large shares of the market from Intel in order to do well, and vice versa. The processor market has roared back, and it's carrying everyone higher. Which is good. 22GO>