Stocks quoted in this article:
Two companies that announced better-than-expected earnings after the bell last evening are getting crushed today. The common thread is that they both sell their products to the telecommunications industry. CacheFlow (CFLO – 42-3/16), a seller of network caching equipment, has seen its shares fall over 40 percent today on five times normal volume. The company reported a loss of nine cents per share versus expectations of an eleven-cent loss. Sales were 45 percent higher than the previous quarter and grew from $4.8 million the same quarter last year to $32.5 million this year. So what's the catch? Management failed to revise guidance upward for 2001 and there is concern about decelerating sequential revenue growth.
Portal Software (PRSF – 7-1/16) was trading as high as 21-1/8 yesterday. It earned a profit of $.04 per share, which doubled expectations, while revenue was up 157 percent over last year. That does not sound like a reason for the stock to be annihilated or to receive three downgrades. But it still was not good enough. License revenues and gross margins did not meet Wall Street's expectations. The real concern about lower licensing revenue is that emerging telecommunication companies such as local carriers are facing a crisis themselves, with lower stock valuations and an inability to obtain further financing for capital expenditures. Consequently, these and other companies associated with the telecom industry are facing a "fire first, ask questions later" skepticism from the investment community.
Despite this precipitous decline, PRSF options trading remains light, though most activity is on the call side. CFLO, however, saw 1,000 contract blocks trade on the out-of-the-money December 80 and December 95 calls, probably institutional purchases. Also crossing the tape were 537 December 90 puts and 651 December 100 puts, in various-sized blocks.