Enterprise software vendor TIBCO Software (TIBX, Financial) released not so impressive results for the third quarter. The results missed analysts’ estimates on both revenue and bottom line. The decline came in mainly due to the rise in the subscription revenue as well as weakness in the European market. However, the management of the company is still confident of overcoming this situation. It is focusing on various key strategies to be profitable in future. Also, it is undertaking many initiatives to strengthen its long term prospects. Let us take a look at TIBCO’s underlying business.
A detailed look at the results
Recently reported third quarter by enterprise vendor TIBCO was not impressive as far financials are concerned. It posted quarterly revenue of $259.6 million which declined from $270.9 million as compared to the same quarter a year ago. This also failed to meet consensus estimates of $272 million on top line. The net income of TIBCO declined to $2.6 million, or 2 cents per share, from $21.3 million, or 13 cents per share for the year ago period. On the earnings front, TIBCO posted EPS of $0.14 per share which again fell shy of consensus estimates of $0.18 per share.
TIBCO is in a transition phase. The company is pleased with the pace at which it is moving towards its objective. Though the company posted good numbers, they weren’t impressive enough to meet analysts’ expectations which led its shares to fall. However, TIBCO thinks that these are only some of the short-term challenges that it is seeing due to the transition that it is expecting to achieve in a long term. In this line, TIBCO is therefore expecting lower license revenue in the short term.
Transition in progress
The company expects to still be in its infancy for the transition. But being in line with the robust progress, TIBCO is confident of achieving its goal of recognizing 20% of its software revenue from recurring subscriptions in fiscal year 2015. The main competitive advantage of TIBCO is its strength and its larger named accounts. It has already been getting enough traction in this segment in the past and is now anticipating larger transactions with it.
TIBCO is focusing on enhancing its leadership in sales by focusing on some key initiatives such as its major account installed base, its sales enablement processes and consistent geographic execution. These initiatives are expected to enhance ability to sell scale to a broader base of customers.
Further, TIBCO is also making advances to build good execution foundation in its core infrastructures and if it works out well TIBCO has plans to replicate it throughout all sales function globally. On the other hand, TIBCO is worried about the weak international business so to enhance it, it is aligning its operations to enhance its functions over the next several quarters.
Product focus
TIBCO is laser focused on improving its market share. Its primary organizational objective is to add value to its addressable market. To achieve this, the management is coming up with powerful and attractive user friendly offerings. It is also ramping up its marketing and sales. Under this TIBCO is trying to improve the Spotfire download experience which includes a new campaign titled “The world is a simple place.”
TIBCO is also concerned about the product side. TIBCO launched Spotfire 6.5 at the end of Q2, which delivers a user-friendly approach to easily connect diverse set of sources and create rich analytics. In addition, TIBCO has a broad lineup of products for Spotfire and Jasperspot which will be released towards the end of the fiscal year.
Further, TIBCO is expected to improve more on the back of alignment with the Chicago Bulls on the Engage Platform. The Bulls will use the solution to drive real-time interaction with their fan base. In addition to Engage, the Bulls will also be using Spotfire Cloud and TIBCO integration technology. This deal is a great example of a new customer leveraging multiple product lines. This is surely help TIBCO to enhance its business going forward.
Conclusion
Moving on to the fundamentals, TIBCO is overvalued with a trailing P/E of 63.21. Its forward P/E of 29.64 indicates that the earnings of the company are expected to grow at a good pace. But, in the next five years, TIBCO’s earnings are expected to decline with a CAGR of 5.57%, which is way behind the industry average of 20.44%. So, I would like to suggest investors to watch TIBCO from the sidelines as of now.
