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Mark Gomes, PTT Research (1,276 clicks)
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Broadvision (BVSN) investors sit at the precipice of yet another earnings announcement. The company will report Q1 results after the bell next Wednesday. In my last article, I expressed concern over BVSN's valuation and likelihood to post disappointing Q4 revenue and earnings. At the time, shares of BVSN were changing hands at over $40. By day's end, the stock had fallen to below $34. Two days later, lackluster earnings sent the shares to a low of $20.

At present, they are hovering around $30. Earnings are once again immanent and Pipeline Data again expects uninspiring news. Its Q4 conference call provided strong hints to this effect. CEO Pehong Chen warned that "this could be a frustrating wait for our investors". He went on to say that "short term financials might be challenging" and asked investors for patience.

In contrast, on Jive Software's (JIVE) Q4 call, management stated that "2011 was a tremendous year of execution for Jive and we are entering 2012 with strong momentum. We have established a clear market leadership position in social business software with an impressive customer base."

The company will report Q1 earnings on May 8. Analysts are expecting Q1 revenue to be up more than 50% to $24.4 million versus $16.1 million in Q1 of 2011. By comparison, BVSN will have to report revenue of $7.7 million to match its rival's growth trajectory. We believe Broadvision is unlikely to even hit $7 million.

The difference comes down to resources and product functionality. Broadvision has shown its ability to be capable in the past. It also possesses a strong development team, which enabled it to capture a leading position in the e-Commerce platform market some ten years ago. However, since that time, venture funding has poured into the space, making it difficult to compete in newer Internet segments.

For proof of this, one only need compare BVSN's R&D spending to JIVE's. In the most recent quarter, JIVE invested $7.8 million on product development. In contrast, BVSN only spent $1.3 million. In fact, JIVE's investment was nearly twice BVSN's total revenue. Regardless of one's respect for BVSN's technical capabilities, this financial gap is simply too great to overcome. Going head to head with JIVE would threaten to exhaust BVSN's cash balance by the end of next year.

When BVSN's shares traded under $10, we were bullish on its low-risk valuation and potential for innovation (see BroadVision: Profitable, But Selling for Less than Cash). It took nearly two years, but BVSN eventually lived up to our pursuit of "stocks that are poised to triple".

However, since that time, we believe the shares became (and remain) overvalued. We would consider becoming more constructive in the mid-teens.

Source: Broadvision And Jive Are Set For Another Quarterly Clash