Tuesday, September 11, 2012

Actionable Call Alert: Tibco Software (NASDAQ:TIBX)

It's been a while but Think Equity's Yun Kim is out with a potentially devastating call on TIBCO Software (NASDAQ:TIBX) downgrading the name to Hold from Buy with $32 price target (prev. $36) after their checks revealed lingering organizational issues.

- 10% headcount reduction planned in U.S.

Kim notes additional checks since early last week suggest that there could be some organizational issues lingering in the Americas region, which may result in a reduction in the workforce for the region. They believe it could be a sizable number (maybe up to 10% of the region's headcount) across all functional groups. Firm notes that there were 1,561 employees in the Americas region at the end of FY11. Kim believes some of the reduction is associated with the company's efforts to streamline its operation given the numerous acquisitions it has made over the past several years. However, they also believe that some of the reduction is reflective of lingering organizational and sales execution issues in the Americas region and could signal more modest growth in the region going forward, at least in the near-term.

Kim notes that the company's head of the Americas region left after the end of F2Q due to performance issues. Given that shares are trading at a premium to its peers, the firm expects shares to be under pressure if the company implements a sizable headcount reduction plan, which they believe many investors will interpret as a sign that the company's business trends are turning negative.

They are reducing their license and total revenue estimates going forward, but are maintaining their F3Q top-line estimates given their positive checks, especially in its European region. Think Equity is also raising their margins and EPS estimates to reflect possible headcount reduction and tighter cost controls going forward.

Notablecalls: Actionable Call Alert!

Here's why:

- On July 5, another big-data player Informatica (NASDAQ:INFA) issued a warning blaming mostly internal (sales) execution issues. This resulted in over 30% haircut to share price:

Here's the release:

- Tibco trades around 25x EPS which means execution needs to be flawless. If Kim's right, Tibco shareholders are in for some big time volatility.

I'm guessing 7-10% downside in the n-t for TIBX putting $29-30/share levels in play.
Use possible bounces to scale in.


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