Great Plains - Getting Greater and Less Plain

Great Plains - Getting Greater and Less Plain
P.J. Jakovljevic - April 27th, 2000

Event Summary

In March, Great Plains Software, Inc., a leading provider of e-business solutions for the mid-market, announced financial results for the fiscal quarter ended February 29, 2000. Great Plains reported record third quarter revenues of $48.1 million, a 34% increase over the same period last fiscal year. Revenues for the nine months ended February 29, 2000 were $135.3 million, an increase of 43% over the same period last fiscal year. Net income and diluted earnings per share for the third fiscal quarter, excluding the effect of amortization of acquired intangibles, were $3.5 million and 21 cents per share, respectively. Consensus EPS reported by First Call is 20 cents. These results compare to $3.5 million and 24 cents per share for the same period last fiscal year.

"In the mid-market, business is becoming e-business. Increasingly, every mid-market customer realizes the need to become electronically interconnected with their community including their suppliers, customers, employees and prospects. Great Plains and our partners are delivering the e-business solutions today to enable these companies to thrive in this new interconnected world," said Doug Burgum, chairman and CEO of Great Plains.

The following are some of the highlights that have been announced or occurred since Great Plains' last earnings release:

  • Great Plains enhanced the Sales and Marketing Series of Great Plains Siebel Front Office with the addition of Telebusiness for telemarketing campaign management. The Sales and Marketing Series is fully integrated with its core ERP products, eEnterprise and Dynamics for SQL Server.

  • Great Plains' network of Application Service Provider (ASP) partnerships grew to 27. The ASP offering expands the prospect base, adds incremental distribution, and provides additional business opportunities to partners.

  • Great Plains announced immediate support for the Microsoft Windows 2000 operating system with its leading e-business product solutions, eEnterprise, Dynamics, and Great Plains Siebel Front Office.

  • Great Plains continued its European expansion with the establishment of offices across Germany, Austria, and Switzerland. Through acquisitions, Great Plains added 100 team members, 80 partners, and more than 1,600 customers across this European region.

  • Great Plains acquired PWA Group, Limited, a leading provider of Web-based employee-facing solutions and upper-tier mid-market human resources and payroll solutions. This acquisition provides Great Plains a strategic e-business employee-facing component and significantly expands its human resources and payroll offerings.

  • Great Plains grew its community of mid-market customers and expanded its reseller partner channel through the acquisition of RealWorld Corporation, a developer of accounting and business solutions. This acquisition added 20,000 customers and 200 partners to the Great Plains community.

  • Great Plains announced the acquisition of FRx Software. FRx's Web-centric analytic applications are the standard for mid-market financial reporting and have been marketed with Great Plains' solutions since 1994. FRx Software will operate as an independent, wholly owned subsidiary of Great Plains and will continue to market it solutions through existing and new distribution relationships.

  • Great Plains and Scala Business Solutions N.V. formed a strategic partnership to collaborate and deliver additional e-business and enterprise solutions to global customers, including the development of a new generation of Wireless Application Protocol (WAP) products to extend the e-business desktop to a variety of devices.

  • Great Plains released the Call Center application for Great Plains Siebel Front Office. The Call Center application is an integrated sales and service solution for universal call agents to address outbound sales opportunities while conducting inbound support.

  • AppNet, Inc. and Great Plains partnered to design a Web-based business environment that delivers personalized, end-to-end business processes, community interactions, and buying power aggregation to any interconnected community member.

  • Great Plains added e-business banking functionality through the addition of funds transfer, pay tracking and reconciliation applications. These e-bank applications electronically interconnect businesses and banks and fully integrate with eEnterprise and Dynamics.

Market Impact

Over the last 18 months, Great Plains has made a big noise and established itself as a low-end mid-market leader while remaining constantly profitable (See Figure 1). Great Plains has recently taken full advantage of its favorable market capitalization to extend both its foothold in the coveted small-to-medium (SME) ERP market segment and fill the current gaps within its product portfolio and geographical coverage.

We believe that the company struck a good balance in extending its offering through both acquisition and partnering with best-of-breed vendors. Further, it has been impressive in selecting partners and integrating disparate products. Nevertheless, we believe that the company should now take a deep breath and carefully devise its future moves. Rampant additional acquisitions may lead to an unmanageable product portfolio and wear thin corporate financial and human resources.

Moreover, the company will be faced with the following challenges.

First, it will have to integrate its full suite of acquired applications, since some of its fierce competitors within the SME market, like Solomon Software, promote their single code base for the entire product range as a big advantage.

Second, it can expect growing pains in merging disparate product lines and training the newly extended large affiliate channel.

Finally, Great Plains will have to beef up its multi-site manufacturing and distribution functionality as well as its multi-national capabilities in order to remain the leader in the SME market. The companies are increasingly realizing that the fancy 'click' side of the business is a mere castle in the air without a proper 'brick' business foundation. Will these capabilities be achieved with yet another acquisition?

User Recommendations

We generally recommend including Great Plains in a long list of an enterprise application selection to small and mid-market companies (with $1M-$250M in revenue). Great Plains should be included on any package selection short list within the SME market where electronic business and accounting modules are the main pillars of an enterprise application.

Any organization evaluating Great Plains should consider existing functionality only, and, in the case of final selection, should negotiate incorporation of new applications components now at negotiated license fees, given Great Plains' recent increase in new product announcements.

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