Shedding Some Fast Light on Ariba's Financial Performance

I'll leave it to the market and Wall Street to pass judgment on Ariba's financial results by rewarding or punishing the stock, but for the sake of shedding some light into their financial performance -- from a former FreeMarkets insider -- I thought I'd offer up a few thoughts. To begin, Ariba is generating cash to the tune of $7 million last quarter (which is not bad considering what they're eating on the spread between their cost and what they have subleased their office space for at their Sunnyvale campus which was originally designed for a company 4x the size). So whoever thinks they're losing money and can't get profitable from a cash perspective is simply wrong. Just look follow the cash flows.

In addition, the number of "large deals", as they define it, is increasing. Last quarter, they had 9 software only deals in $1 million plus range and 21 solution deals (software + services or just services) in that range. This is up from 7 / 20 (software / solution) and 3 / 17 (software / solution) large deals respectively in recent quarters. And subscription backlog is growing (which now stands at $85 million). Of course they're missing out in some areas. They should be capturing a far larger share of the consulting growth in the sourcing and supply chain market. And their BPO deal signings -- at least what I know of -- relative to Accenture and IBM in 2006 are not where they could be from a revenues perspective. But from an On Demand software revenue growth angle, Ariba is one of the largest players in the sector (Procuri and Emptoris are also in a similar class, depending on how one defines On Demand -- especially with Emptoris -- but all of this is open to interpretation). Regardless, Ariba's revenue migration is not bad considering that less than three years ago, the vendor was entirely dependent on traditional license revenue.

Jason Busch

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