Tech Industry

VerticalNet meets Street's expectations

Improved software sales help VerticalNet meet analysts' loss estimates in its first quarter.

VerticalNet met analysts' estimates in its first quarter Thursday but still lost $28.2 million, or 30 cents a share, on sales of $36.7 million.

First Call consensus pegged the provider of software and online marketplaces to lose 30 cents a share on sales of $34 million.

VerticalNet shares closed down 4 cents to $1.98 ahead of the earnings report before moving up to $2.12 in after-hours trading.

The $36.7 million in sales represents a 185 percent improvement from the year-ago quarter when it lost $13.6 million, or 18 cents a share, on sales of $12.9 million.

In the quarter, software sales rose to $8.9 million, up from $6.1 million in the prior quarter.

VerticalNet, which lost Chief Executive Officer Joseph Galli in January, has been forced to refocus its business in recent months, shifting itself from a content provider to a marketplace facilitator and then finally to a software provider.

"It's been very frustrating to see this company reorganize its model now, what, three times," said Frank Gristina, an analyst at Robinson-Humphrey. "Now it's clearly on the software side, but that's a market that's going through some real difficult times right now."

Ahead of the earnings report, Gristina pegged VerticalNet for a loss of 33 cents a share on sales of $33 million.

"This quarter's results are going to make or break this company," he said. "The bottom line is we need some definitive signs of organic growth."

Pitted against the likes of Ariba and Commerce One, VerticalNet did show some signs of growth this quarter as software sales grew to $8.9 million, up from $6 million in the prior quarter.

"We are pleased to have beaten projections for the quarter despite the current economic environment, and we have taken actions to aggressively reduce expenses to ensure that we meet our goal of attaining positive quarterly cash earnings this year," Chief Executive Officer Mike Hagan said in a statement. "We remain an agile business that has proven its ability to quickly and successfully react to evolving market and customer needs."

Sales from its marketplace business accounted for $27.8 million of total sales in the quarter.

The company also announced that it and Microsoft have restructured a storefront distribution partnership announced in April 2000. Under terms of the new deal, Microsoft will give VerticalNet $40 million to develop e-commerce and hosting tools for small and medium-sized business.

VerticalNet was to receive $49.2 million this year and $5.1 million in 2002 under the previous agreement.

Looking ahead, VerticalNet told analysts to expect second-quarter sales of between $32 million and $34 million and a loss of between 22 cents and 23 cents a share.

Analysts were projecting a loss of 25 cents a share on sales of $45 million in the quarter.

For the fiscal year, VerticalNet expects to lose between 56 cents and 60 cents a share on sales of between $150 million and $160 million.

First Call consensus pegged it for a loss of 73 cents a share in the fiscal year on sales of $234.4 million.

Last quarter, VerticalNet posted a loss of $28.5 million, or 32 cents a share, on sales of $40.7 million.

The stock surged up to a 52-week high of $63.38 in July before swooning to a low of $1.29 a share earlier this month.

Twelve of the 20 analysts tracking the stock maintain either a "hold" or "sell" recommendation.