Ariba's Earnings: A Quick Uninformed Analysis

Here at Spend Matters, I try to stay away from vendor financial analysis. I find the qualitative world of Spend Management far more interesting than pouring over earnings information and revenue multiples (despite having done this sort of thing in a former life). And besides, there's thousands of financial analyst types willing to stay up later than me who are better at it anyway. But I still find it hard to ignore the earnings performance of the larger public vendors in the Spend Management sector including Ariba. Ariba just released their latest numbers. According to the AP, "For the quarter ended Dec. 31, the company lost $3.7 million, or 6 cents per share, compared with $46.8 million, or 75 cents per share, last year. The loss includes $4.8 million in charges for amortization of intangible assets, $8.8 million in stock-based compensation expenses, and $273,000 in restructuring costs. Excluding one-time items, the company said it earned $10.2 million, or 14 cents per share, compared with adjusted earnings of $1.3 million, or 2 cents per share, a year earlier. Last year's results included a litigation provision, restructuring costs and charges related to the amortization of intangible assets. As the company transitions from a software licensing model to a subscription-based, on demand model, it said revenue for the quarter was $76.2 million, down from $86.9 million last year."

This morning, I took a quick look at the numbers, but did not listen to the conference call from yesterday. My two minute analysis is that Ariba's quarterly performance suggests that the firm is moving in the right direction from a profitability standpoint (except for one-time items). However, software revenue appears way down, but I'd bet that much of this is due to financial engineering because Ariba has been guiding the street to look at subscription revenue rather than license revenue for many quarters. This makes it almost impossible to compare software / subscription revenue this quarter to past quarters, as I'm not sure how they're counting various items which could fall either way. Still, less than $10 million in traditional license revenue is peanuts relative to Oracle and SAP who can earn this amount in a single large license deal.

Jason Busch

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