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WSPI - What Happened?

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May 13, 2008 – Comments (1)

WSPI got pounded today after their earnings call on Monday. But Why?

They beat earnings estimates by a penny. They missed revenue estimates by $500,000 - it was supposed to be $31.5 mil and came in at $31 mil.

If you are like me, you think - a 13% drop for beating estimates and missing by a measly $500 grand? Doesn't make sense!

My buddy ctojeira (on Caps) and I couldn't figure it out. It had to be on the Conference Call, so I listened. This is what I heard - I will paraphrase WSPI execs and give my own interpretation....

WSPI: We are in the process of migrating customers from Web.com to WSPI billing processes and we lost low margin business.

HPEGuy's take: The Web.com merger isn't going well.

WSPI: We are transfering Web.com customers to our architecture and technology but we are doing this slowly and will take all year.

HPEGuy's take: The Web.com merger isn't going well.

WSPI: We haven't really tried to cross sell into existing Web.com customers yet, we want to take it slowly

HPEGuy's take: The Web.com merger isn't going well.

WSPI: The loss of low margin business from Web.com meant $300,000 in lost revenues.

HPEGuy's take: The Web.com merger isn't going well.

So I think the point is rather clear - the Web.com merger isn't as amazing as Zacks and other analysts made it out to be. Ipso facto - 13% drop today.

That said, we can't miss the fundamental picture here - margins ARE expanding. WSPI is doing the right thing by ensuring that the merger is succesful, taking short term revenue hits to ensure long term success. So what if we don't see the big pop in revs and earnings for a little while? The investment community thinks this stock is high tech. Wrong. This is a blue collar company that provides an absolute essential service. Web presence is no longer a luxury, its a must have. When you need to hire a contractor, investigate a fitness club or get directions to a golf course, where do you go? Answer: the web. All this conference call did is create an even better opportunity to load up on WSPI. I own the stock and will own even more tomorrow.

--HPEGuy

1 Comments – Post Your Own

#1) On May 14, 2008 at 12:30 AM, Tastylunch (29.98) wrote:

Sure it does, all that matters in the short term is expectations. If a company doesn't do better than analysts or traders think it should they'll sell off because they are speculators and they only care about a potential wave of buyers they hope that will buy on the "surprise" news they hope to hear.

Sometimes even exceeding targets is not good enough, if the future outlook by management is not insanely rosy for growth stocks speculators sell. It happened to Google several times. I think that's probably what happened here as you surmised. Web.com's integration is not a smash success, just a good one at this time and it's intergration will take longer than expected thus the speculators poured out of WPSI. Speculators are like junkies needing better and better surprises to maintain their interest (in this case investment in a growth stock).

It happens all the time which is why timing the market is a foolish venture for most.

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