PLATO's School of Hard Knocks
By
Tom Taulli
September 10, 2007
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Restructuring can be tricky in the rapidly changing tech sector, as online education software developer PLATO Learning (Nasdaq: TUTR) has discovered. Over the past year, shares have lost about half their value, and it still looks as if the company needs more time to make a real comeback.
In the third-quarter results PLATO reported late last week, revenue plunged 18% to $19.2 million, largely because of the company's move from license fees to ongoing subscriptions. Following the success of companies like Salesforce.com (NYSE: CRM), the subscription approach has become quite popular in the enterprise software market. It's more palatable for customers, since there are no upfront fees, and companies like it because it tends to lead to greater recurring revenues.
Still, that transition can be difficult, especially for a company's sales organization. That's been the case with firms like RightNow Technologies (Nasdaq: RNOW) and Concur Technologies (Nasdaq: CNQR).
As it shifts to a new revenue model, PLATO has been slashing its operating costs -- though not by enough to compensate for the drop in sales. Q3 saw a net loss of $1 million, or $0.04 per share, compared to a net loss of $1.8 million, or $0.08 per share in the year-ago period.
All the same, PLATO shows signs of progress. Orders for Web-based subscription products increased 59% to $11.1 million, and the company is revamping its sales force to tackle the new emphasis on subscriptions.
When might revenue stabilize? On the conference call, PLATO's management was not willing to promise anything. That may be a wise move, but it wasn't what Wall Street wanted to hear. As a result, it's probably a good bet that the company won't continue to make the grade with investors.
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