Ariba boosts 2Q, full year outlook

Economic uncertainty isn't stopping Ariba (Nasdaq: ARBA) so far, but the company's latest growth forecast isn't quite as bullish as in the past.

The vendor of business-to-business marketplace software and services on Thursday forecast per-share earnings of 6 cents on second quarter revenue of $180 million to $185 million, and 25 to 26 cents on full year revenue of $780 million to $790 million.

First Call consensus was calling for an Ariba second quarter profit of 4 cents per share on revenue of $178.5 million and full year earnings of 18 cents per share on revenue of $751.2 million.

Although the outlook was raised, it was less optimistic compared to previous guidance updates, analysts said. Ariba in past quarters would boost future targets far above analyst expectations.

"The outlook was a little conservative, but I expected it to be because of the economy," said Laura Lederman, analyst with William Blair & Co.

Shares of Ariba traded at 43.16 in afterhours activity on the Island electronic communications network, following the earnings report. Ariba rose 3.3125 to 43.375 in Thursday's regular trading ahead of the news.

Ariba reported fiscal first quarter net income of $14 million, or 5 cents per share, excluding special charges, on revenue of $170.2 million. Analyst consensus expected a profit of 2 cents per share on revenue of $154.75 million, according to First Call.

Including non-cash charges, Ariba lost $347.6 million, or $1.48 per share.

First quarter revenue increased 625 percent year-over-year.

Analysts were expecting Ariba to top published estimates. The stock has been battered by lingering concerns about growth in network services revenue, new customers and deferred revenue.

In a conference call with analysts, Ariba executives said their recurring revenue streams are growing. A good measure for Ariba's long-term health would be network services revenues, said Larry Mueller, president and chief operating officer. That segment rose 29 percent sequentially in the first quarter to $26 million, or 15 percent of overall revenue.

CFO Bob Calderoni said a decline in deferred revenue isn't a problem because that doesn't include term license deals, which are counted as recurring revenue. However, some observers worry that the increase in term license deals -- which last for two to three years, although all the revenue is paid up front -- means Ariba's overall license business isn't growing as rapidly as thought.

"I think there are still some questions," Friedman, Billings, Ramsey analyst David Hilal said, following the conference call. "A lot of the answers they gave were vague."

But Ariba for months has been saying it intends to boost its term license business, William Blair & Co.'s Lederman said.

"I think the term licenses really threw people on the call, but it shouldn't have," Lederman said. "That's something the company has been fairly open about. It leads to a better long-term life for the company, so it's a good thing.">