Just the other side of the weekend, marketing number-cruncher WebSideStory (NASDAQ:WSSI) plans to report its fourth-quarter and full-year 2006 earnings results Monday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Surprisingly for a firm with less than $60 million in annual sales, a whopping 15 analysts are avid readers of little WebSideStory's earnings reports. Eleven of them rate the stock a buy, three more a hold, and just one a sell.
  • Revenues. Here's a clue as to why: These analysts are looking for 66% quarterly sales growth to $19.45 million on Monday.
  • Earnings. Even so, profits are predicted to be up just a penny to $0.16 per share.

What management says:
Big changes are afoot at the top of WebSideStory. For one, the firm has a new CEO and a new chairman, Jim MacIntyre and Bill Harris, respectively. On the other side of the out door, by the time you read this, Rand Schulman will no longer be running marketing. Nor will Jeffrey Lunsford be CEO, having lit out to run Akamai (NASDAQ:AKAM) rival Limelight Networks. Steve Kusmer has also left the building, and his old job as senior VP for Search and Content Solutions.

What management does:
WebSideStory's margins look quite the train wreck lately, as the rolling tallies begin to reflect what's been happening in the most recent quarters. The firm's rolling gross margins continue to slide, of course, but more important to the bottom line, the firm is spending huge wads of GAAP "cash" to expense stock options, invest in R&D, and depreciate and amortize its acquisitions.





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Drilling down a little deeper to see what's been driving these margins, here's what I see. Over the last couple of quarters, sales are averaging 57% higher than last year. However, the cost of sales has cleanly doubled, SG&A expenses are up 68%, and research and development spending rocketed 354%. For those keeping score, each of those cost metrics exceeds the rate of sales growth -- making margin compression inevitable.

The good news: Many of these costs are "non-cash," and in fact, WebSideStory's free cash flow has exploded during the same period, up 62.5%, so even faster than sales growth.

The bad news: WebSideStory is not doing a great job of explaining this fact. Although the company does downplay its bad GAAP numbers, CFO Claire Long takes a pretty ham-handed, circa-1999-ish approach to the effort, baldly asserting in last quarter's earnings release that: "We enjoyed robust margin expansion, up to a 17 percent net margin from 12 percent last quarter." In the face of three straight quarters of GAAP net losses, that assertion looks not so much disingenuous, as just plain detached from reality. That is, until you realize that Long is referring to "pro forma" margins, and simply forgetting to tell investors this.

If WebSideStory makes a similar silly-sounding assertion next week, at least now you'll know what it means -- and that what it also means is that the real story here isn't GAAP losses, but real cash profits.


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