Prophet 21 First Quarter Revenues Suffer But Pipeline Grows

  • Written By: Steve McVey
  • Published On: December 13 2000



Prophet 21 First Quarter Revenues Suffer But Pipeline Grows
S. McVey - December 13, 2000

Event Summary

Prophet 21 recently announced financial results for its first quarter of fiscal 2001 ending September 30, 2000. Revenue from new license sales and hardware sales plummeted 68% to $1.8 million from the previous quarter ended June 30, 2000. Total revenue decreased 39% to $8.2 million from the previous quarter. Earnings also dropped sharply into negative territory for the first time since the same quarter of the previous year.

Figure 1.

Over the past five years, Prophet 21 has not experienced the strong growth of some of its competitors in supply chain execution and warehouse management system markets. While many other vendors have seen total revenues advance at a compound annual growth rate (CAGR) of 50% and higher, which would net to more than 500% over five years, Prophet 21's total revenues exhibit a rate of just 95% over the past five years. Fiscal 2000 was especially deflating for the Pennsylvania-based vendor, bringing it the lowest license revenues in those five years. Y2K concerns might have been a valid excuse in the past, but CEO Charles Boyle once again cited it as a reason for this quarter's lackluster results. In fact, though, he placed most of the blame on investment in Trading Partner Connect, the digital marketplace for durable goods expected to be released in 2001.

Figure 2.

CEO Boyle deflected attention from this quarter's financial results by emphasizing the progress made on the Trader Partner Connect (TPC) digital marketplace and in filling the pipeline with future revenue opportunities. Prophet 21 describes TPC as a distribution-centric Internet trading hub that allows participants to decrease inventory levels, streamline procurement processes, and enable collaboration. Part of the progress involved relieving its 51 person direct salesforce from their normal responsibilities for selling software so they could be trained on TPC, to be ready to divide and conquer when the initiative is made available sometime next year.

Trading Partner Connect, the company's current burden and potential savior, is in beta release now at selected sites with general availability planned for sometime during the second half of fiscal 2001.

Market Impact

It is not uncommon for small companies with limited resources to occasionally stop fishing altogether and cut more bait. Larger companies typically have the financial wherewithal to do both activities simultaneously. By concentrating on TPC to the exclusion of maintaining a steady stream of revenue, Prophet 21 seems to be placing its future entirely in the hands of the new initiative - a gamble that may or may not pay off in the end.

With the stock market in turmoil, increasing wariness on the part of venture capital firms, and talk of a recession, Prophet 21 can afford no mistakes in bringing TPC to market. Without a reliable source of cash, one misstep can jeopardize its operations and compromise the launch of the digital marketplace it expects to rekindle its business. One reason why Prophet 21 has decided to focus almost exclusively on TPC is that many of its competitors have already launched their own fledgling digital marketplaces. For Prophet 21, being the last to join the B2B party may cause it to appear a perpetual wallflower in the eyes of users.

User Recommendations

Durable goods manufacturers and distributors who may be considering Prophet 21's Unix-based Acclaim product for distribution management should not be too alarmed by the company's recent financial woes but should consider whether its unerring devotion to digital marketplace initiatives and accompanying investment focus mesh with their own long term goals. Prospective users need to assess the viability of potential vendor partners whose solutions may need to be maintained for ten years or more.

 
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