Breakaway's shares skid on earnings warning, layoffs

The Internet consulting company falls more than 30 percent after it says fiscal third-quarter earnings will be lower than expected and that it plans to lay off 9 percent of its work force.

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Shares of Breakaway Solutions today fell more than 30 percent after the Internet consulting company said fiscal third-quarter earnings would be lower than expected and that it plans to lay off 9 percent of its employees.

The Boston-based company joins a growing list of consultancies, such as Viant, Lante, iXL Enterprises, Xpedior and Luminant Worldwide, that have felt the wrath of investors this earnings pre-announcement season.

Breakaway shares fell $2.81, or about 38 percent, to $4.69 in midday trading on the Nasdaq. The stock traded as low as $4.38, a new 52-week low compared with a high of $85.50 over the same period.

Breakaway expects its revenue to go just about nowhere in the second half of the year. The company estimates that its revenue for the third and fourth quarters will be equal to or slightly greater than its second-quarter revenue of $35.2 million. That figure is about 7 percent below the low end of analysts' third-quarter expectations, according to a statement.

Breakaway also expects a loss of 2 cents to 4 cents a share for the third quarter compared with Wall Street expectations of a 1 cent loss, the consensus estimate of 12 analysts surveyed by First Call/Thomson Financial.

The announcement was followed by at least five analyst downgrades from Janney Montgomery Scott, Dain Rauscher Wessels, George K. Baum & Co., CIBC World Markets and WR Hambrecht.

The company attributed part of the shortfall to receiving less business from pure-play dot-com companies, which have been hit hard during the last few months by the market downturn. But Breakaway also points the finger at old-line brick-and-mortar companies that have slowed their move to the Web now that the fear of being swallowed by the dot-coms has faded.

"Everyone is feeling some impact from fewer dot-coms, but that trend is not new and has been used as a convenient scapegoat," Gordon Brooks, Breakaway's chief executive, said in a statement. "The reality is that (consulting companies) are facing brick-and-mortar customers who now demand strong differentiation, and a compelling and sustainable value proposition for their businesses."

Companies no longer feel they have to rush to get on the Web, and now want to take the time to do the job right instead of quickly, meaning a longer sales cycle for the consultancies and a thinner revenue stream.

To combat these changing times, Breakaway will lay off 9 percent of its work force. At the end of 1999, the company employed about 565 people.

The company also said it plans to expand its sales force, cut general and administrative costs, and look for more business in Europe and Asia.

Other consulting companies also fell today. Sapient fell $1.63 to $35; Scient dropped $2.50, or nearly 14 percent, to $15.94; and Razorfish lost 81 cents to $9.