BroadVision Revenues Decline 25%; Transition Continues

Includes: BVSN, JIVE
by: Mark Gomes

Wednesday evening, BroadVision (NASDAQ:BVSN) reported earnings results for the first quarter ended March 31. Revenues for Q1 totaled $3.8 million, down 25.4% from $5.1 million in Q1 of 2011. The company posted a loss of 29-cents per share versus a 9-cent loss in the year-ago period.

The company's sales fell well short of the figure we outlined our earlier report as declines in its legacy e-Commerce business overshadowed efforts to grow its Social Enterprise business. The implication is that BVSN's revenue share continues to decline versus Jive Software (NASDAQ:JIVE).

Analysts are expecting JIVE's Q1 revenue to be up more than 50% to $24.4 million versus $16.1 million in Q1 of 2011. JIVE will report earnings on May 8.

BroadVision management attempted to stay focused on its Clearvale business, but the recent volatility in its stock was an unavoidable topic of discussion. CEO Dr. Pehong Chen opened the call by stating,

"The company has noticed that during Q1 2012, there has been an unusually large amount of trading activity and price movement in its stock. The company is not aware of any corporate developments that it believes would explain this unusual activity."

During Q&A, investors peppered management with questions about whether the company was affiliated in any "stock pumping" activities. NIA was an organization widely raised in these questions. In response, Dr. Chen was emphatic that BroadVision, its employees, and/or its board are not affiliated with NIA in any way or for any reason.

Chen stated that BroadVision is comprised of "honest, focused, high-integrity businesspeople trying to build the business." He also reinforced that no company insiders have sold any shares of late.

Here is Pipeline Data's take on this issue -- Pipeline Data has no comment or opinion regarding NIA. However, we have followed BroadVision since our inception in 2004. Further, I have personally followed the company since the mid-90s at two different firms (IDC and AMR Research). During those 15 years, I have never known (nor heard of) Dr. Chen to be anything but an honest, focused, high-integrity businessperson.

Despite my negative view on the valuation of BVSN stock, I have great admiration for Dr. Chen's accomplishments. As such, one must sympathize with his and the rest of his organization. This must be a great distraction for the company. No matter what you might think of the company, its valuation, or the NIA, you have to credit BVSN's officers for refraining from selling any shares at this point in time. No matter how tempting it might be, the public perceptions would surely worsen from current levels.

Getting back to what's really important, license revenue fell to $1.4 million versus $1.5 million in the year ago period. Maintenance revenue declined nearly 30% to $1.7 million from $2.4 million. As mentioned above, e-Commerce revenue continues its cash cow slide. Meanwhile, Clearvale revenue has not had an equivalent offsetting influence due to the company's strategy to penetrate new accounts with hopes of monetizing those customers in the future (much of its revenue is based on adoption / usage).

Consulting declined by more than 40% to 0.7 million from 1.2 million, as the company transitions to a partner model to present Clearvale to mid-market customers.

The company's book value increased by $763,000 in the quarter. We believe that this was due to $1.7 million generated from BVSN employees who exercised their stock options during the quarter. This would imply a net loss of $1 million in book value during the quarter, excluding option activity. Accounts receivable, deferred revenue, and unearned revenue all appeared relatively stable. Shares outstanding increased nearly 100,000 to 4.6 million.

The company highlighted that Clearvale Social Analytics was released during the quarter. The company also released enhancements to its flagship Clearvale Enterprise product, including task management, Sharepoint integration and extension into the mobile app paradigm.

Development and sales efforts led to 45 partner and paid-customer signings versus 33 during Q4. These efforts are geared toward building channels and traction in the mid-market (100-2000 employees). The vast majority of these deployments involve limited trials and equally limited initial revenues.

Accordingly, Dr. Chen reiterated his message from last quarter, warning that "short-term financials might be challenging", which might be "frustrating for investors". He continues to believe that it is necessary for the company to continue investing in R&D and business development efforts as BVSN executes its turnaround strategy.

The company believes its R&D investments have made Clearvale "newer, better, and cheaper" than the competition. Pipeline Data does not refute those claims. However, we would point out that JIVE invests roughly five times as much into development. With this level of expenditure, it can match the three years of BVSN's Clearvale development in less than three quarters.

In addition, Yammer is investing heavy dollars into R&D and claims 80% penetration into Fortune 500 companies. BVSN has competed against Yammer, but as Dr. Chen pointed out, his company focuses on the mid-market. That being said, they have landed some large accounts. Also, Chen believes the product can scale and aren't averse to accepting inbound RFIs from large organizations.

Toward the end of the call, an investor asked if the company might be the subject of an acquisition. Dr. Chen replied by saying that management is not designing or building the company to be acquired. The plan is to become an important player in the Enterprise Social market, which he believes to be in the "first-half inning of the ballgame". He concluded by saying that this is the seed time for its compelling pricing model.

In short, the company is optimistic about its long-term prospects, but investors should expect earnings to remain meager in the interim.

Based on these results, expectations of continued cash-burn, and the company's chances for success, we continue to believe that the shares should be valued at 1x its revenue run rate, plus cash. At present, that equates to a market cap of $71 million or $15.50 per share.

The shares were down some 6% in after-hours Wednesday, recouping 4% on Thursday.

Disclosure: I am short BVSN.