ServiceSource shares hit new low on weak guidance
NEW YORK (AP) — Shares of ServiceSource International Inc. plunged to a new low Tuesday after the software company posted slightly better-than-expected third-quarter results, but issued a weak forecast for the current quarter.
THE SPARK: ServiceSource said Monday that excluding one-time items, its adjusted third-quarter profit, excluding one-time items, was 2 cents per share. Revenue increased by 18 percent to $59.1 million.
Analysts polled by FactSet forecast a loss of 1 cent per share on $58.9 million in revenue.
ServiceSource also said it expects to post an adjusted fourth-quarter loss of 1 to 2 cents per share on $62 million to $64 million in revenue. Analysts estimated earnings of 4 cents per share on revenue of $72.2 million. For the full year, ServiceSource cut its adjusted profit outlook to a range of 6 to 8 cents per share with revenue between $238 million to $240 million. Analysts were expecting earnings of 7 cents per share on revenue of $248.4 million.
THE BIG PICTURE: San Francisco-based ServiceSource provides service revenue management software.
The company's chief financial officer, David Oppenheimer, said he's encouraged by the success of some of the company's efforts to grow the business but said weak economic conditions and the timing of some contracts could hurt its revenue.
THE ANALYSIS: The weak guidance prompted Deutsche Bank analyst Tom Ernst Jr. to cut his rating for the company's stock to "Hold" from "Buy," and he slashed his price target by more than half to $7 from $15.
Ernst said he sees significant challenges ahead for the company, noting that less than half of its sales force has more than a year of experience under its belt.
"We anticipate ServiceSource will find it challenging to sell with a young sales force in a nascent service renewal industry," Ernst wrote in a note to investors.
The analyst added that the company plans to keep investing and its new accounts are still ramping up in terms of revenue. Both things could limit its profit in the near term, he said.
THE SHARES: Down $3.09, or 37.7 percent, to $5.11 in heavy afternoon trading, after dropping as low as $5.05 earlier in the day, a new low for the company, which went public in March 2011.