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Descartes Evolution Yields Revenue Growth But No Profits

Written By: Steve McVey
Published On: December 1 1999

Descartes Evolution Yields Revenue Growth But No Profits
S. McVey - December 1st, 1999

Event Summary

Descartes Systems Group recently announced its financial results for the third quarter ended October 31, 1999. Revenues were $10.5 million (USD), a decrease of 16% from the same period in fiscal 1999. License revenues rose 27% to $4.8 million in Q3 FY00 from $3.8 million in Q2 FY00. Descartes also reported that 80% of license revenues were derived from e-commerce, an increase of 33% over last quarter. Net loss for the quarter was $4 million or ($0.11) per share compared with a net loss of $6.5 million or ($0.18) per share in Q2 FY00.

Market Impact

Since acquiring five companies in 1997 and 1998, Descartes has eschewed its niche in traditional supply chain execution (SCE) and repositioned itself as a provider of applications for optimizing Internet customer fulfillment networks (See TEC News Analysis article: "Descartes Systems Group Makes D&T Growth List", September 20th, 1999). Although some of Descartes' DeliveryNet components overlap with offerings from Industri-Matematik, Manhattan Associates, and EXE Technologies, there is evidence to support its claims. For instance, Descartes' new focus is borne out by a recently announced partnership with Optum, Inc. in which it serves as a complementary provider. Optum will resell Descartes' DC Optimizer, acquired from NRM Systems in July 1998, to extend the footprint of its SCE warehouse management system with optimization capabilities. Another event that supports Descartes' move beyond its traditional SCE role is its collaborative logistics exchange that allows companies to plan future capacity utilization and manage a real-time load and equipment tendering process.

In emerging from SCE, Descartes enters a market already occupied by other players. Its route optimization components compete with products from CAPS Logistics (Baan) and Roadnet Technologies. Its collaborative logistics exchange offering will bump up against a similar forum supported by The National Transportation Exchange. In addition, other SCE vendors are moving into the customer fulfillment space as evidenced by components in Industri-Matematik's VIVALDI suite. Descartes is targeting a market with huge potential but will face competition from a growing number of players.

User Recommendations

Although Descartes' revenues advanced this quarter, users should temper any enthusiasm with the fact that it has not reported a profit in at least ten quarters. Wall Street's enthusiasm for its stock in spite of its string of losses may be the best indicator that Descartes is now an Internet company. (Descartes may want to rename itself "Descartes.com" to complete the effect.) Still, retailers that are planning a move to direct store delivery over the Internet would do well to include Descartes on their shortlists. Descartes has achieved high visibility in this niche through successful courtship of high-profile clients such as Coca-Cola and Pepsi. One consideration that users need to include in their decision: Descartes uses a success-based pricing model that requires clients to pay more as they expand their fulfillment networks to more customers. Although success may result from use of a new software product, other factors are often involved have nothing to do with software. Success-based pricing is becoming increasingly popular in the enterprise applications market but it is not for everyone.

 
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