Analyzing Ariba’s Fourth Quarter (Part 1)

Last week, Ariba announced its latest quarterly results. Even though the purpose of this mini-series looking at their performance and what it means for the market is to dig into the numbers and qualitative observations, I find it curious that Ariba has completely backed away from calling itself a procurement or Spend Management vendor. To wit, in the first sentence of the press release, Ariba now describes itself as "the leading provider of collaborative business commerce solutions." Still, despite the updated corporate positioning as a new type of buyer/supplier intermediary, you can't argue with Ariba's actual results. The company is now pushing a $400 million run-rate.

Specifically, "total revenues for the fourth quarter of fiscal year 2010 were $95. One million, as compared to $84.3 million for the fourth quarter of fiscal year 2009." Year-over-year subscription (e.g., SaaS) revenue increased 12% by our calculations, jumping from $41.1 million to $46.50 million for the same fiscal fourth quarter period. Yet maintenance revenue dropped on the quarter compared with the prior year, from $16.80 million to $16.40 million based on our calculations of how Ariba breaks out this category of revenue. Spend Matters believes this decline is due in part to limited customer defections from legacy Buyer/P2P implementations and potentially renegotiated maintenance pricing.

Ariba continues to generate cash. In the latest quarter, "net cash flow from operations ... was $12.8 million, as compared to $18.8 million for the prior period." Interestingly, deferred revenues dropped in the quarter, to $104.3 million compared with $110.5 million during the same. In total, Ariba signed deals with some 262 companies, including 35 new customer wins and "10 software deals" over $1 million in value.

Our initial behind-the-scenes quick take on the quarter is that Ariba continues to execute successfully on both expansions and new customer wins owing to the lead generation machine it has created. Based on our internal knowledge of the company from recent discussions, it would appear that the current structure in marketing is weighted heavily to product-led demand creation -- and this is showing up in the ability to generate new business. Clearly, this is an organization that is sales-led rather than engineering/product led, outside of the network business (where we think greater pockets of new innovation and investment exist that include both organic/inorganic expansion options).

As a final note in Part 1 of this post, our own intelligence suggests that Ariba is still winning many competitive transactions because of price leadership and solution breadth -- not because prospects/customers see significant general functional advantage across many of its capabilities. Stay tuned as we go deeper on Ariba's numbers and what they mean for the market later this week.

Jason Busch

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