See this story where Norwegian enterprise search vendor, Fast Search & Transfer, makes a significant (~$15M revenue shortfall) 2Q07 earnings warning:
Fast Search & Transfer closed 4.25 nkr lower at 10.75 after the search platform specialist warned its second-quarter results were unlikely to meet market expectations, with sales coming in at between 34-38 mln usd compared to what analysts say is a consensus forecast in the region of 50 mln.
The group said ‘changes in business practice’ and the tightening of internal control procedures have had an adverse impact on second-quarter revenues.
‘We believe that these changes had an impact of 10 mln usd when compared to the first-quarter results,’ it said. ‘In addition, a shortfall in expected sales revenues has had a further adverse impact of about 5 mln usd in the quarter.’
On top of this, Fast said the second quarter has seen exceptional items worth a combined 5 mln usd, which means expenses in the quarter are also going to come in ‘higher than market expectations’.
Additionally, Fast said it expects to make an increased provision for bad debt ‘in excess of the 6 mln usd previously communicated’. Fast is scheduled to release it second quarter results on Aug 8.
For a long time, I’ve felt that Fast was the MicroStrategy of enterprise search; so concerned with showing high growth that it — how do I put this nicely — let the basics slide. Frankly, I didn’t draw that conclusion all by myself; some of it came from reading a few financial analyst reports about them, other information came from discussions with former employees who described the culture in terms that reminded me of MicroStrategy, and some came from my general sense that Fast was spread too thin, with too many initiatives for a company their size.
By my math, this means the “high growth” vendor in enterprise search is actually shrinking. Per the 2Q06 earnings release, revenues in 2Q06 were $38.5M. Their new 2Q07 guidance is $34 to $38M, so they are shrinking somewhere between 1% and 12%.
If you think financials don’t matter when it comes to market perception, think again. And I’m not talking about the Norwegian stock market, I’m talking about the customer market. As a customer, or industry analyst / consultant who advises them, tell me how you would feel about a supplier who is:
- 70% of the leader’s size, profitable, and growing at 50%
- Less than half the leader’s size, unprofitable, and shrinking
It makes quite a difference, doesn’t it?
While most industry analysts would not admit it, they look a lot at reported vendor financial results in determining their opinion of a company, the effectiveness of its strategies, and ultimately things like its placement on a magic quadrant or equivalent diagram.
I’d note (and I’d guess the timing of all this is not a coincidence) that Fast announced the appointment a new president and COO this week, Joseph Krivickas.
Velkomen, Joe. I hope you brought a mop.
- We compete with Fast, although indirectly
- I am a CEO analyzing the market, not a financial analyst analyzing stocks, and I do not make buy/sell recommendations
- See my FAQ for more