PeopleSoft defies odds, Q2 beats the Street

By Matt Hines and Jon Panker, SearchCRM.com Editors 02 Jul 2003 | SearchCRM.com

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One analyst on this morning's earnings call may have summed up the general reaction to PeopleSoft Inc.'s preliminary quarterly results with a single word: "Wow!"

Despite a hostile takeover bid from rival Oracle Corp., PeopleSoft has managed to beat Wall Street estimates. The Pleasanton, Calif.-based applications vendor anticipates total second-quarter revenue of $490 million to $500 million and license revenue of $105 million to $115 million.

Thomson First Call had expected overall revenue ranging from $390 million to $500 million.

PeopleSoft expects a quarterly per-share profit after one-time items of between 10 cents and 11 cents, an increase over its original guidance of 8 cents to 9 cents.

PeopleSoft announced it had closed 30 new deals in the quarter and that new customers accounted for 30% of license revenue. The company insisted that the quarter wasn't "front-loaded" and that it didn't slash prices to attract business.

PeopleSoft did introduce a customer-protection program, which offers financial compensation in the event of an acquirer discontinuing PeopleSoft products.

PeopleSoft CEO Craig Conway said the results came "against all odds and odds makers" and reflect an "undeniable vote of confidence" from customers. Conway credited PeopleSoft's products and customers' confidence in the company, as well as anger with Oracle.

Oracle first made a play for PeopleSoft on June 6, four days after PeopleSoft announced plans to acquire rival J.D. Edwards & Co., Denver. Some questioned whether Oracle's move was merely a means of disrupting PeopleSoft sales.

Since then, Oracle has upped its offer to $6.3 billion, or $19.50 per share. PeopleSoft's board of directors has recommended that shareholders reject Oracle's offer, citing possible antitrust violations. On Monday, the Department of Justice asked Oracle for additional information regarding the PeopleSoft takeover.

Meantime, PeopleSoft has proceeded with the J.D. Edwards acquisition and expects it to close in the third quarter.

Investment analysts following PeopleSoft admitted their surprise over the positive earnings statement. David Hilal, managing director of Washington-based Friedman, Billings, Ramsey Group Inc., said the results would have been considered unlikely even if Oracle had not made its hostile bid last month.

"It was a pretty tough quarter for applications vendors in general," he said. "But I think we may now see some stability in the market from an industrywide perspective."

Hilal said he was not sold on PeopleSoft's claim that a significant number of enterprise customers closed deals with the vendor to hurt Oracle's proposed takeover. In fact, he said a larger number of users were likely to have deferred investments in PeopleSoft products based on the outcome of the looming deal.

"[PeopleSoft] only got mixed results from the customer-protection program offer," Hilal said. "Many customers didn't care."

Hilal said he does not believe that Oracle's bid will succeed, basing his judgment on the amount of discord the deal has already caused among antitrust regulators and the reality that Oracle might also be forced to take on J.D. Edwards, if PeopleSoft can push that acquisition through rapidly, as he believes the firm will attempt to do.

Conway conceded that these quarterly results are "not entirely a Cinderella ending." He said PeopleSoft would have had a far stronger quarter had Oracle not made its hostile bid.

Conway admitted that PeopleSoft lost some business because of Oracle but said that most potential customers delayed their purchasing decisions instead of choosing another provider. He reiterated his message that the Oracle bid would be bad for the software industry and for thousands of PeopleSoft customers.

"It would require every customer [to] spend millions or tens of millions on re-implementation costs," Conway said.

In a statement, an Oracle spokesman said PeopleSoft's strong quarterly results were due to "one-time gimmicks such as two to five times money-back guarantees, favors from business partners and other tactics from a company desperate to put up numbers for a single quarter."

PeopleSoft plans to release final quarterly results later this month.

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