Should PeopleSoft be Overly Happy?

Should PeopleSoft be Overly Happy?
P.J. Jakovljevic - June 1, 2000

Event Summary

In April, PeopleSoft announced financial results for the quarter ended March 31. Revenues, net income and net income per share for Q1 2000 from recurring operations were $375.4 million, $11.0 million and $0.04, respectively. This compares with revenues, net income and net income per share from recurring operations of $350.1 million, $7.9 million and $0.03, respectively for Q1 1999 representing a 39% increase in net income. Including non-recurring items, net income and net income per share for Q1 2000 were $16.8 million, and $0.06, respectively (See Figure 1).

Figure 1

PeopleSoft's license revenues were down almost 9% to $90.2 million, compared to $98.7 million a year ago. Revenues from service increased 4% to $262.1 million, up from $250.8 million in Q1 1999. Revenues from international operations for 1Q 2000 increased by 17% to $83.2 million compared with $71.2 million for 1Q 1999. The results for all periods presented include the results of The Vantive Corporation, which merged with PeopleSoft in Q4 1999.

"Our momentum in the marketplace continued to build into 2000 with very strong Q1 financial results", said PeopleSoft President & CEO Craig Conway. "Key financial indicators were all positive, including earnings - up 39% from Q1 1999; revenue - up 7% from Q1 1999; cash flow - more than $63 million in Q1 2000; and increases in deferred revenue during the quarter. We are seeing increased demand in our CRM and supply chain product suites as well as our traditional businesses in HRMS and Financial solutions. Competitively, we are winning key deals against SAP, Oracle, and Siebel."

The following major highlights were announced or occurred since the last earnings release:

  1. Delivered Vantive eSuite - one of the industry's first true Internet-architected CRM solutions.

  2. Delivered Vantive Wireless CRM for eBusiness providing real-time data to field professionals.

  3. Introduced Professional Services Automation - one of the first, complete, 100% Internet PSA solutions.

  4. Launched PeopleSoft eCenter - application-hosting (ASP) service.

  5. Expanded partnership with Commerce One to deliver B2B eCommerce Exchanges.

Market Impact

We regard PeopleSoft's results as a mixed blessing. Undisputedly, while most of its competitors stumbled, with the exception of Oracle, PeopleSoft posted strong profits and revenue. The bleak days of 1999 and the possibility of being taken over by J.D. Edwards are a matter of the past. Furthermore, the above recent initiatives and new product releases indicate that the company is in sync with market trends.

However, PeopleSoft's license revenue was down almost 9% despite the acquisition of CRM vendor Vantive, whose market has been experiencing stellar annual growth. Profits came mainly from a radical cost-cutting exercise to the extent of 43% compared to a year ago (although we praise a hefty 19% increase of R&D cost at the same time). Therefore, its CEO's claims of beating competitors and winning a number of deals are mere wishful thinking.

Nevertheless, PeopleSoft has strong management and is running a profitable business, although it may be short-lived without sustaining license revenue. The company has a history of squandering very promising acquisitions away-the Red Pepper purchase from a few years ago being one. A similar mistake with Vantive would be disastrous, particularly since CRM is a part-and-parcel of the new economy giving PeopleSoft a golden opportunity.

We believe that PeopleSoft is still in a good position to be a strong contender in a number of industries. While this may not be the case in complex manufacturing until the market witnesses the real capabilities of its forthcoming PeopleSoft 8 release (or a possible acquisition of Baan's ERP business), it certainly can compete in traditional service industries with its human resources, financial, and now CRM and e-business modules. It may also compete in distribution industries like Consumer Packaged Goods with its supply chain and logistics functionality resulting from the Red Pepper purchase.

User Recommendations

PeopleSoft is a very strong contender in enterprise application selection processes within the following industries: utilities, service providers, financial institutions, public sector, insurance, and higher education. It should be on a short list in any selection where HRMS system, financial modules, and e-business/self-service are the main pillars of an enterprise application.

Since the company has been touting the significant manufacturing and supply chain product enhancements within its new release, which is due later this year, current and potential users are advised to inform themselves about these. Furthermore, organizations that are in an early stage of evaluating PeopleSoft should negotiate incorporation of new CRM applications components by bundling them into the contract now at negotiated license fees, and be wary of application integration work-in-progress.

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