NEW YORK (CNNfn) - marchFIRST Inc. saw its stock plummet almost 60 percent Tuesday after the Internet consulting company missed third-quarter earnings expectations by 19 cents a share.|
In Tuesday afternoon trading, marchFIRST (MRCH: Research, Estimates) spiraled down $6.88, or 58 percent, to $4.94, recovering slightly from its earlier low in the day $4.75. The company's previous 52-week low was $8.81 and its high $81.13 a share.
The Chicago-based firm turned in third-quarter revenue of $369 million, below analyst estimates of $405 million, and posted supplemental net income of $2 million, or 1 cent a share, widely missing Wall Street estimates of 20 cents a share.
MarchFIRST 's net loss was $436.7 million, or $2.86 a diluted share, versus net income of $9 million, or 14 cents, in the year-ago period.
Company management fingered the dismal dot.com environment as the cause of its shortfall, as Internet firms increasingly have tightened purse strings in Web development in the wake of the sector's shakeout.
"The environment for professional services over the past few months has been challenging," marchFIRST's Chairman and CEO Robert Bernard said.
"A number of factors have created this environment, including the downturn in the market, changing e-commerce priorities and the weakness of the euro," Bernard said.
Analysts caught off guard
While those issues may have put a crimp on marchFIRST's earnings, many Wall Street watchers were surprised by such a wide miss, as the company gave no hint of the shortfall and recently said it expected to match forecasts.
J.P. Morgan analyst Robert St Jean, who initiated coverage of marchFIRST† two weeks ago with a long-term "buy," and price target of $17 a share, told CNNfn.com that although he wasn't surprised by a miss in earnings, he did not expect it the magnitude to be so large.
St Jean attributed the company's woes to sector weakness and transitions in management since it was formed by last year's merger of Whittman-Hart and USWeb/CKS.
"I have a very high regard for the management team at marchFIRST," St Jean said. "I think they have accomplished a lot, but they have a large task in front of them."
Salomon Smith Barney analyst Christopher Paul downgraded marchFIRST to "neutral" from "outperform" and cut its price target to $11 a share.
Downgrades for an ambitious company
Merrill Lynch analyst Thatcher Thompson also downgraded
marchFIRST shares to "neutral" from "buy," based on the disappointing results.
"The company highlighted the changing e-commerce priorities in the market along with the weakness of the Euro," Thompson said in a research note.† "The downturns are almost always more pronounced and prolonged than investors expect.† We would avoid the stock on today's anticipated drop."
Credit Suisse First Boston analyst Mark Wolfenberger told CNNfn.com that in August he downgraded the Web consultancy sector and put his ratings into suspension.
"It's been an unprecedented event for the past 45 days, that even when we downgraded the group at the end of August, we did not expect to see 15 companies basically pre-announce the quarter," Wolfenberger said.
Although Wolfenberger lowered his outlook for the sector, the companies he expects to recover more quickly include marchFIRST, Sapient †(SAPE: Research, Estimates), Razorfish (RAZF: Research, Estimates) and eLoyalty (ELOY: Research, Estimates).
"What's becoming clear is that this has become more of a flu-like epidemic striking all these companies at once, rather than any individual specific issue for companies," Wolfenberger said.
"The dot.com frenzy of last year created such momentum in this group particularly, that when that died, a big part of the fuel that was causing such optimistic expectations died with the dot.com world.
Wolfenberger also cited guidance given by these companies last year was based on the hyped dot.com world, and "in the frenzy of demand, guidance given last year was really beyond what these companies should normally grow at."
"It was like being in the passing lane," Wolfenberg said. "You can only be in the passing lane for so long. What we've got now is essentially a correction back to the normal growth rate that these companies should be doing."