The Invisible Earnings Miss...

What if a major BI player missed badly on their earnings and
weren't punished for it by the market?

Well that's the scenario that just played out with Business Objects in the past few weeks, as they announced a miss of their earnings on the same day as they announced the acquisition by SAP. Talk about your coincidental timing...

Now of course BOBJ has a fiduciary responsibility to disclose the miss, and do so at the earliest possible time. So I'm in no way faulting the timing. It's just a great coincidence that it was done so as the buried story on the day of the acquisition--which of course prompted the stock to go through the roof.

Now while the Business Objects shareholders didn't take a hit for the miss, one might argue that the SAP shareholders were not so lucky. The 3-4% drop of the SAP stock of course wasn't due directly to the fact that the company they were acquiring had missed their numbers, but moreso that SAP was radically changing its acquisition strategy, which was obviously a bigger deal for long term shareholders.

But back to BOBJ. With the earnings conference call yesterday, a few key nuggets to pick up on from John Schwarz and Jim Tolenen, which were also picked up by other bloggers like Andy Hayler's blog (now linked over on the right) as well:

First, the continued weakness of the core BI, or what's known as Information Discovery and Delivery, part of the business. As others have noted, this showed little to no growth in the quarter, while other companies' core businesses have continued to hum along in the same market conditions that Business Objects found so challenging.

Now I get that the sub prime mortgage mess was a big deal, but they are the first vendor I've seen use this as a prime reason for missing their number. On the other hand, the financial services vertical is the strongest at Business Objects, so maybe it did actually have an effect. But in either case, it's convenient cover. I'll be interested to see if the deals mentioned as Q3 misses actually close in Q4. Often times you hear CEO's, after an early earnings announcement miss, talk about the deals that didn't come in on time but have already closed in the following 3 weeks or so since the pre-announcement, thereby validating their claims that the business is on track, they just has a little slippage. That didn't really happen here.

Second, was this response to a question on the impact of the Cartesis integration on performance management deals in the quarter:

Keith Weiss - Morgan Stanley:
Okay. And then in terms of product, you talked about the distraction from integrating to acquisitions, Cartesis and Inxight in the quarter. Is there any relationship between that comment and perhaps any product focus, where some of the deal focus might have been, was the focus in any particular product segment or is that really across the board?

John Schwarz - Chief Executive Officer:
It's been across the board, but I think your question does have merit in the sense that we have seen some customers asking questions about the overlap between our SRC planning tools and the Cartesis planning tools. And that has contributed to a couple of deferrals and in fact one loss. So, that confusion generated if you will from the overlap was a contributing factor, no question about that.

Expect the competition to make some hay out of that statement, especially since the integration efforts into OutlookSoft/Pilot/SAP are not going to make things any smoother.

The last big news was that BOBJ will not be giving earnings guidance for Q4 and going forward. That seems fair, given the volitility of the integration and the impact that competitive attacks, sales people discounting like heck to clear their pipeline, end of year pull forward--a number of factors.

However, if history repeats itself, I'd expect BOBJ to have a killer Q4; they tend to bounce back in a big way after they miss--although questions on discounts, pipeline, growth, etc. will be interesting to track as they get absorbed into SAP in the next couple of quarters.