New Plan, 13% Layoffs, Mark Concur’s Third Quarter Disappointment

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New Plan, 13% Layoffs, Mark Concur's Third Quarter Disappointment
D. Geller - June 13, 2000

Event Summary

Concur Technologies, Inc. expects third quarter revenues between $12.8 million and $14 million. These numbers are lower than Wall Street analyst estimates. Further, the company's loss is now expected to be larger than analyst estimates of 70 cents per share (approximately $17.5 million). By comparison, Concur's Q2 revenues were $10.8 million with a net loss of $19.3 million.

In a press release announcing these predictions the company blamed its woes on its transition to a new operating model and on special charges associated with a workforce reduction of 13% -- 68 employees. The new operating model, to be overseen by a new COO/CFO named Stephen A. Young, calls for all business efforts to be focused on delivering its solutions through an ASP model. This is in reaction to an increase in ASP customers from 60 to 150 in six months. In the long run an ASP model produces a steady stream of revenues, but during the switchover the irregular flow of license revenues is interrupted while the ASP revenues are ramping up.

Market Impact

It is not too hard to imagine that one market impact of this announcement will be the near-term disappearance of Concur as a separate company. With its stock price around $5 - down from $5.5 just before the announcement and much lower than its July 1999 peak at above $40 - the market capitalization is less than $125 million, and the company held half of this as cash at the end of Q2. This makes it a tempting takeover target, especially since its product suite is well accepted and generally powerful (see Concur Aims To Be Single Point Of (Purchasing) Access).

Where Concur once had visions of being a direct competitor to Ariba, it is now finding its customers coming from small to mid-size companies. Although it has not stated specifically that it will retarget its focus this way in North America, it recently announced its entry into Europe specifically as a supplier of ASP services to small and mid-sized companies.

User Recommendations

As Concur goes through what may be a difficult time in the next few months some users will see an opportunity. Companies smaller than Concur's traditional customers now have an opportunity to gain access to powerful software that they could previously not afford. Concur's expense reporting application Concur Expense is a traditionally strong product and should survive any near-term cost cutting or management changes. Concur Procurement has less of a track record, but so long as the company remains relatively intact it is hard to imagine an e-procurement product being jettisoned.

There is the possibility, of course, that the company could be purchased for the purpose of acquiring just one of its assets. Still, it seems very unlikely that other ASP products would be terminated instantly and, without disregarding the true costs of integration, one of the reasons for choosing an ASP solution is exactly to gain some flexibility in changing vendors - or having vendors change under you.

We think that the danger for larger companies would be that Concur might not be able to maintain itself as an innovative software developer while running a hosting service. When push comes to shove, if there's a choice between putting resources on development and putting them on keeping current customers up and running, there's no real choice. And Concur's commitment to building a trading marketplace, almost a necessary ancillary for its e-procurement offering, is another direction the troops have to march in.

While prospective customers do need to be cautious before signing with Concur, we don't believe that they should drop the company from consideration as an ASP provider. Their products will place first or second in many evaluations, and their advantages could easily outweigh the risks inherent in the company's current situation.

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