Tibco Software Inc. (TIBX): Why Investors Need to Be Cautious About Tech in Q2

Page 1 of 2

Just as Albert Einstein might have said, it’s all relative, isn’t it? In case of Tibco Software Inc. (NASDAQ:TIBX)’s latest results, it most certainly is. The real question is to analyze what is going on in an absolute sense and what it might mean for the rest of the tech sector. It’s been a difficult 2013 so far for technology, so what do the tech company’s latest results tell us?

TIBCO’s Q2 results were within guidance, but so what?

In summary, Tibco Software Inc. (NASDAQ:TIBX) managed to report results within the range of its previous guidance. While this may not seem like a big deal, its beleaguered investors are bound to breathe a sigh of relief as it has disappointed so often over the last year. Indeed, a look at its previous statements and results reveals a mix of disappointing results accompanied by some, arguably, overly positive commentary and guidance.

Turning to the previous quarter, here is how the numbers compared

– Q2 revenue of $245.8 million vs. guidance of $242 million-$252 million. Adding back the adverse currency movements gives a revenue figure of $247.2 million

– Q2 license revenue of $82.3 million vs. guidance of $78 million-$88 million. Adding back adverse currency movements gives a license figure of $82.9 million

In other words, the numbers came in pretty much at the mid-point.

Happy days are here again?

Environment remains challenged

Frankly I think these results weren’t great and they weren’t what many tech investors may have been hoping for.

Firstly, let’s recall that Tibco Software Inc. (NASDAQ:TIBX) has had some company specific sales execution issues which it seems to have spent a few quarters trying to rectify. Therefore, we might have expected some additional performance merely from fixing these company issues. Indeed, TIBCO talked of improved performance in the U.S. (the region where its execution has been weak for a while) with the financial services vertical up 10% and retail up 19%. These two areas contributed seven of the top 10 deals.

Secondly, while Tibco Software Inc. (NASDAQ:TIBX) has a reputation for offering best in class solutions, it is also known for being relatively expensive compared to comparable solutions from its main competitors International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NASDAQ:ORCL). It may well have been missing out on business because of this, but the indications from its deal size and customer behavior are that customers are trimming deal size and Tibco Software Inc. (NASDAQ:TIBX) is taking on smaller size deals. For example, in the previous quarter, it reported 147 deals above $100,000 as against 137 last year. However, it only had 12 deals above $1 million as opposed to 20 last year.

Note that both Oracle Corporation (NASDAQ:ORCL) and International Business Machines Corp. (NYSE:IBM) had argued, at their calendar Q1 results, that their pipelines were largely still in place and hadn’t been reduced. Instead, they had argued – linked here and here – that the problem was merely about the timing and execution of these deals. The difference now is that Oracle and Tibco Software Inc. (NASDAQ:TIBX) have reported for Q2 and there does appear to be some trimming of deal size. This is usually a sign of weakness in the spending environment and not just an issue of ‘deal timing.

Page 1 of 2