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Foolish Forecast: Blackboard Ready to Squeak

By Rich Smith – Updated Nov 15, 2016 at 5:34PM

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Views you can use to get clues on Monday's news.

Monday's the big day, Blackboard (NASDAQ:BBBB) fans. The educational software maker is due to report its much-anticipated, first-ever loss under generally accepted accounting principles early next week.

Although investors have had months to prepare themselves for the bad news, there's never any guarantee how a given person will respond to the squeak of nails on a chalkboard. Will Mr. Market abide it with equanimity or cover his ears and flee the room screaming?

What analysts say:

  • Buy, sell, or waffle? Monday's projected Q1 2006 loss has already spooked Wall Street, which has lowered its ratings dramatically. There are now only two buyers on the Street, and five say hold.
  • Revenues. This, despite the fact that revenues are expected to come in 20% stronger on Monday than at this time last year. $37.3 million is the target.
  • Earnings. Profits, as already mentioned, are expected to evaporate. A $0.01-per-share loss is projected against last year's $0.20-per-share profit.

What management says:
Here's what the company has to say on the subject that has Wall Street all a-skitter: Blackboard expects a $0.01- to $0.02-per-share loss on Monday, on about $36.9 million in revenue. (So right away, the analysts look pretty schizophrenic. They're downgrading the stock at the same time as they expect it to beat its own guidance.) "Cash net income," which may be Blackboard-speak for free cash flow, is projected to be fairly strong, at $1.8 million to $2.2 million for the quarter. For the year, Blackboard is projecting even scarier numbers -- about $169 million in revenue yielding a loss of roughly $0.55 per share, and cash net income coming in somewhere between $0.9 million and $2.5 million. So whatever news we hear Monday, Blackboard itself expects it will be the best news we hear all year long.

What management does:
What a pity. The anticipated results, if they come anywhere near true, are going to wreak absolute havoc on the beautiful margin trends that Blackboard has been creating. Enjoy the weekend while it lasts, folks, because in all probability, you won't see expanding gross, operating, and net margins like those reflected below for quite some time to come.

Margins %

9/04

12/04

3/05

6/05

9/05

12/05

Gross

69.6

69.6

69.5

69.9

70.5

70.6

Op.

7

9.2

12

14.9

16.9

18.1

Net

6.4

9

12.5

15.9

18.1

30.9

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

The Fool says:
The Fool says that when there's as much doom and gloom as reflected above, there's an opportunity to be had. Or as Motley FoolHidden Gems analyst Bill Barker put it in one of our daily updates back in March: "The purchase method of accounting for [Blackboard's] WebCT acquisition explains most of [the expected loss], with the cost of share-based compensation expense, which has been excluded from analyst estimates up to now, explaining the balance . [T]hings are going well with the WebCT acquisition. Accounting conventions are going to obscure Blackboard's profitability for the next 24 months or so, but the profitable growth story remains intact."

'Nuff said.

Competitors:

  • VCampus (NASDAQ:VCMP)
  • SumTotal Systems (NASDAQ:SUMT)
  • Saba Software (NASDAQ:SABA)
  • eCollege.com (NASDAQ:ECLG)

Blackboard is a Motley Fool Hidden Gems pick. Take the newsletter dedicated to great small-cap stocks for a 30-day free spin.

Fool contributor Rich Smith does not own shares of any company named above.

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