BEA's Not-So-Beautiful Quarter

Investors were expecting a particularly strong third quarter from enterprise software developer BEA Systems (Nasdaq: BEAS  ) , which hit a 52-week high in late October. Unfortunately, the good vibe ended last week, as the stock plunged 17% to $13.05 on its latest earnings news. The company does have some growth opportunities, including one with a new trend known as service-oriented architecture (SOA), but those opportunities appear to be delayed.

In the third quarter, revenues increased 19% to $347.7 million, and the company posted a 12% increase in software license fees to $136.4 million. This is important, since these revenues lead to ongoing maintenance and service fees.

However, there was no report on BEA's net earnings, because of its internal investigation of its prior option grants. There should be an announcement on the status of this investigation sometime in December.

BEA develops advanced software systems known as middleware, which help companies operate e-commerce sites and other Web applications. The company also develops corporate portals, which help companies organize internal operations.

However, these categories are fairly mature, and each has major competitors, such as IBM (NYSE: IBM  ) , Oracle (Nasdaq: ORCL  ) , and Red Hat (Nasdaq: RHAT  ) . BEA has done a tremendous job of improving its technologies and building strong customer loyalty, but to find growth, the company has invested in a new approach: SOA. This allows companies to use Web-based technologies to make information technology (IT) systems work better.

A big catalyst for SOA is the surge in mergers and acquisitions activity. As companies combine, they may have different IT architectures, but SOA can help these firms better meld their operations.

Unfortunately, it is taking time for BEA to get traction in this market. Fourth-quarter guidance is light, with a forecast for revenues of $378 million to $392 million. This should not be too surprising, since it's not unusual for companies to move slowly when adopting a new technology.

That said, it's certainly a big issue for BEA. And until things pick up, the stock price should languish.

We've beamed in further Foolishness:

Crazy for small caps? Wild about index funds? Whatever your investing style, the Fool has a newsletter for you.

Fool contributor Tom Taulli does not own shares mentioned in this article.He is currently ranked 41 out of 13,432 in CAPS. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 517463, ~/Articles/ArticleHandler.aspx, 7/31/2014 4:51:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement