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MicroStrategy plummets
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March 20, 2000: 4:59 p.m. ET
Shares fall more than 60 percent on earnings, revenue restatement
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NEW YORK (CNNfn) - Shares of electronic commerce software maker MicroStrategy Inc. plummeted Monday - losing more than half their value in a plunge of $140 - after the company said it will restate operating results for the past two years to comply with new federal accounting guidelines on reporting revenue.
The little-known Vienna, Va.-based company, which has seen its stock shoot up thousands of percent over the past year, said it will report a 1999 loss instead of a profit, and also will revise 1998 results downward after changing the way it reports software revenue from service contracts.
The move comes three months after the U.S. Securities and Exchange Commission, concerned that some companies -- particularly high-tech firms -- are artificially boosting revenue in earnings statements, issued new guidelines for how revenue should be reported.
After announcing that it would restate results, MicroStrategy (MSTR: Research, Estimates) shares sank 140, or 62 percent, to 86-3/4 on the Nasdaq exchange, helping lower sentiment for the tech sector as a whole. MicroStrategy stock traded as high as 333 earlier this month, from a low of 7-11/32 a year ago.
Wall Street analysts said the earnings restatement and subsequent stock sell-off came as little surprise.
"I think the stock had been very extended in terms of valuation, in any event, so I think it was very vulnerable to something like this," said Bert Hochfeld, of Josephthal & Co.
MicroStrategy offers computer software and support services to companies that allow them to mine their databases for marketing trends and personalized information about their customers. The company, which went public in June 1998, has about 900 corporate clients, including Internet firms, retailers and pharmaceutical makers.
MicroStrategy CEO Michael Saylor said the company is working closely with its auditors to comply with "evolving" accounting practices for the industry, saying the company will now report revenue from sales contracts throughout the lifetime of the contract, rather than recording it as a traditional sale that is recognized immediately.
He said the new accounting methods should cause "no material change in our net cash flow and the amount of revenue we expect to recognize."
For 1999, the company will report revenue of about $150 million to $155 million, down from the $205.3 million originally reported. The change will result in an operating loss of 43 cents to 51 cents per diluted share, compared with earlier results of a 15-cent per share profit.
For 1998, revenue was revised to a range of about $95.9 million to $100.9 million, from $106.4 million. The company reduced full-year diluted profit to about 1 cent-to-4 cents per share from the 8 cents originally reported.
The company also said it expects first-quarter 2000 results to fall short of the First Call consensus forecast of 1 cent per diluted share, but did not provide specific forecasts.
Stocks of MicroStrategy's competitors also fell sharply in the wake of the company's announcement. E.piphany Inc. (EPNY: Research, Estimates) dropped 30-1/2, or 15 percent, to 170; Kana Communications (KANA: Research, Estimates) fell 28-1/2 to 103, a 22 percent slide, and Vignette (VIGN: Research, Estimates) ended the day down 36-5/16 at 199-15/16, a 15 percent drop.
MicroStrategy's situation is probably not unique, and some other software makers may be forced to restate results as well due to "super-aggressive" accounting methods, said Robert Burgoyne, technology strategist at Monument Funds Group.
"It's not widespread ... but there are probably others out there," he said. The software industry "has very specific guidelines for how you recognize revenues ... it is fairly complicated but on the other hand there are plenty of people who know what you're supposed to be doing ... I would say the vast majority of companies are in pretty good shape."
In light of the restatement, MicroStrategy said it would delay plans for a proposed follow-on public offering of shares.
Details of the earnings restatement will be included in an SEC filing by the end of the month. 
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