For the past few years, the stock price of Callidus Software
In the second quarter, revenues were $17.7 million, a 40% increase from the same period a year ago. This looks good at first, but keep in mind that the second quarter of 2005 was particularly weak; the company generated only $1.29 million in new license business.
What's more, Callidus is still losing money. Its second-quarter net loss was $3.2 million, or $0.12 per share. This amount includes $1.4 million in stock option expenses. The cash burn rate is also particularly troublesome -- the business went through $3 million in the first quarter of 2006 and $4 million in the second quarter.
Callidus develops software for Global 2000 customers such as Aetna
So what's the problem at Callidus? Increasingly, customers want Web-based products with affordable subscription models. This new model, known as on-demand software, has propelled the growth of companies like Salesforce.com
As for Callidus, it is still primarily a traditional software company. The software can easily cost several million dollars and take a year to implement. Given this, customers may instead opt to use alternatives, such as offerings from SAP
There's also competition from Web-based upstarts such as Xactly. In an interview, that company's CEO, Christopher W. Cabrera, said, "Kudos to Callidus Software for figuring out that on-demand is the future of software, going so far as to mention 'on-demand' 28 times in this week's Q2 earnings call."
Simply put, it's tough for Callidus to get new business, as witnessed by its 4% decline in sequential revenue in the first quarter of 2006 and a 15% sequential decline in the second quarter. The company was able to compensate for the fall-off with service revenues -- but these have much lower margins.
In other words, unless the company can start to juice up new business, it will continue to burn its cash. That will likely keep the stock in the low $3 to $4 range for the foreseeable future.
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