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.