FOOL PLATE SPECIAL
Graphics and animation software developer Macromedia says it will take "aggressive steps" as it looks to cut costs in the face of slowing demand for its products. That's a needed step, as the company spends significantly more, on a percentage basis, on selling, general, and administrative expenses than comparable Adobe -- but targets the troubled Web market even more aggressively.
 |
|
|||||||
|
||||||||
|
||||||||
By
Shares of graphics and animation software developer Macromedia (Nasdaq: MACR) fell nearly 10% in morning trading as the company told investors to expect pro forma fiscal first-quarter (ending June 30) losses of between $0.15 and $0.20 per share before onetime charges. First Call's current consensus estimate is for a $0.13 per share profit. Last year Macromedia delivered profits of $0.33 per share on revenue of just under $95 million. This time around, the company expects sales of $85 to $90 million. "While our products continue to maintain leading market share," said Chairman and CEO Rob Burgess in a prepared statement, "the web professional development tools market is down 20-30% year on year this quarter. We remain very confident in our long-term product strategy and are taking aggressive steps to control our costs and return the company to profitability." Macromedia's long-term product strategy has some proving of itself to do following this news, given the company's recent acquisitions. Macromedia picked up Allaire, which owned the HomeSite webpage editor and the ColdFusion application server for developing e-business software, and the AtomFilms media company that was to supplement Shockwave. But the economic environment has naturally also played a role in investors' concerns about Macromedia's prospects. Adobe Systems (Nasdaq: ADBE) -- the company with which Macromedia is most commonly compared because they target similar customer groups -- managed a decent Q2 as sales rose 15% and it corralled expenses, but was looking for flat revenues, year-over-year, in Q3. And so the near-term profit outlook for Macromedia certainly looks difficult -- even more so given a look at the company's recent operating history, and how it compares to Adobe's. On a percentage basis, Macromedia's costs and expenses -- cost of goods sold, SG&A (selling, general, and administrative expense), and research and development -- have eaten up a far greater percentage of sales over the last five full years than have Adobe's:MACR '01 '00 '99 '98 '97
Some of Adobe's advantages can be attributed to scale, as software production costs tend to fade as a company grows -- and Adobe is the bigger company, revenue-wise, by a factor of approximately three. It's also worth remembering that on a real-dollar basis, Adobe's research and development outlay is still quite substantial.
-----------------------------
COGS 11% 11 19 13 22
SG&A 50 52 59 65 63
R&D 33 25 27 32 28
ADBE '01 '00 '99 '98 '97
-----------------------------
COGS 7% 9 11 13 18
SG&A 41 43 49 43 40
R&D 19 19 21 18 20
*Source: MarketGuide.
But investors trying to track Macromedia's costs over the next several quarters should probably watch the SG&A line, especially if near-term demand is waning. (Macromedia's 30%-owned AtomShockwave games and films operation cut staff and closed offices earlier this month.) While Adobe's vaunted "network publishing" sounds like something of a buzzword, it's clear the company has done a better job expanding its offerings past the Web -- its updated Acrobat software is a good example -- which has in turn broadened its usefulness and potential customer base.
Macromedia, meanwhile, is still essentially a Web-only enterprise, and selling those kinds of products can't be easy right now. What the company called "steps" in May are now termed "aggressive steps," and while Macromedia didn't say exactly what that upgrade entails it seems a sure bet that more -- perhaps painful -- details are forthcoming.
Dave Marino-Nachison wants that bottle of Aunt Jemima to stop talking to him. His stock holdings can be viewed online, as can The Motley Fool's disclosure policy.
RSS Headlines
Fool UK
