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Shares of Kana sink on missed estimates

The software maker falls more than 30 percent as analysts downgrade the stock after the company reports disappointing fourth-quarter results.

Kana Communications was off 31 percent Thursday as analysts downgraded the stock after the company reported disappointing fourth-quarter results.

Shares in the provider of enterprise relationship management software were off $2.94 to $6.50 in early trading, far below its 52-week high of $175.50. By late morning, the stock was down $2.53, or almost 27 percent, to $6.91 on the Nasdaq.

The Palo Alto, Calif.-based company reported a loss of 37 cents a share for the quarter, below First Call's consensus estimate of a loss 20 cents a share, and down year-over-year from 21 cents a share.

Fourth-quarter revenue was $42.4 million, a 557 percent increase over a year ago. But the company disappointed analysts with its services revenue of $13.7 million, down 18.9 percent sequentially from $16.9 million.

For 2000, Kana's revenues were $119.2 million, up 748 percent over the year before. Pro forma loss per share was $1.09 a share for 2000 compared with $1.27 for the prior year.

Goldman Sachs analyst Lilly Bahramipour dropped Kana from her "recommended list" Thursday and rated it "market outperformer." She lowered estimates into 2001, and now expects the year's growth to be around 55 percent, down from 70 percent.

Bahramipour cited the company's fourth-quarter shortfall and reduced forecast for 2001 as reasons for the downgrade, but added on a positive note that she still expects operating profitability by the fourth quarter of 2001.

"While we continue to believe that Kana is well-positioned in its market with a broad customer management suite, we are concerned over lack of visibility and the company's ability to overcome fundamental issues near-term in a less favorable market environment."

The company cited execution problems in its professional services organization and higher-than-expected costs. Management also said visibility was decreasing with growing concerns about IT budget cuts. Kana has begun to streamline its business with headcount reductions throughout the organization. "As a result, we have modeled declining operating expenses and we believe that headcount should stabilize" in the first quarter, Bahramipour added.

U.S. Bancorp Piper Jaffray analyst Sarah Bernstein also lowered her rating to "buy" from "strong buy" and cut estimates.

The analyst lowered her 12- to 18-month price target to $15 from $60 to reflect the newly lowered estimates and current market conditions.

ING Barings analyst George J. Godfrey reduced his rating to "hold" from "strong buy" on the company's weak quarter and even weaker outlook into 2001.

Godfrey said concerns about the company's cash burn rate in the face of a slowing economy, increasing competition from e-commerce software maker Siebel Systems in 2001 and the unexpected departure of chairman and chief executive Michael McCloskey were also reasons for the downgrade.

Kana also announced some management shifts with its fourth-quarter results; Chief executive Jay Wood named David Fowler president and named Nigel Donovan COO.