Investors Take MicroStrategy to the Woodshed

WASHINGTON (03/21/2000) - The stock of one of northern Virginia's high-tech darlings fell off a cliff today after the company announced that it is revising its revenue figures for the past couple of years. Shares of MicroStrategy, a data-mining and e-business software company, plummeted by more than half.

The stock, which was at a high of $333 on March 10, fell $140 to close at $86.75. The company's market capitalization dropped from $20.4 billion to $7.8 billion. MicroStrategy said it is postponing a planned follow-on public offering. "We want to assure investors, customers and partners that we are working proactively with our auditors," says CEO Michael Saylor. "There is no material change in our net cash flow and the amount of revenue we expect to recognize."

Neither Saylor's comments nor an early morning conference call that he chaired appeared to do anything to stem the company's Nasdaq hemorrhage. In a press release, MicroStrategy said its "evolving business model" and new Securities and Exchange Commission accounting recommendations led it to reduce its 1999 revenue figures to somewhere between $150 and $155 million from $205.3 million.

It now will report a loss of between 43 cents and 51 cents per diluted share for 1999, instead of a 15-cent per diluted share net income. Revenue figures for 1998 dropped to between $95.9 million and $100.9 million from $106.4 million. Diluted net income per share for 1998 dropped from 8 cents to between 1 and 4 cents.

MicroStrategy said the new figures reflect a change in how the company reports revenue for its complex contracts, particularly those involving both software and services. The company said it will now use contract accounting, which spreads the recognition of revenues over the entire contract period, instead of counting much of the revenue up front. Saylor, 35, has been enjoying the pole position lately as an entrepreneurial darlings of the northern Virginia tech corridor.

He founded MicroStrategy in 1989 as a data-mining firm. Now, the company's flagship,, aims to deliver proactive intelligence on airline schedules, traffic tie-ups and stock market performance via e-mail, pager and cellular phone. The company counts American Express, General Motors, MCI WorldCom and Network Solutions among its partners.

Last week, while pledging $100 million for a free-of-charge "cyber university," Saylor joked that MicroStrategy's fortunes have swung wildly in recent years.

Seventeen months ago, he said, the company was millions of dollars in debt.

"Then we did an IPO and things got better," Saylor told a Washington philanthropy summit last week. "Now, I have to start thinking about what I'm going to do with the money." Presumably, Saylor now has other things on his mind than figuring out how to be the Internet's answer to Andrew Carnegie; however, he said he remains "as committed as ever" to his idea of a free online university. "The facts are not in question, the contracts are good, and all the revenue's going to come," Saylor says.

Analysts attributed MicroStrategy's nosedive in part to broader investor nervousness about high-flying technology stocks, especially on the Nasdaq exchange. "The stock market will always sell first and ask questions later," says Thomas Neuhaus, a BB&T Capital Markets analyst. "But fundamentally, (MicroStrategy) is very sound." MicroStrategy said it will publicize more details in an SEC filing by the end of this month. The company expects its operating results for the first quarter of 2000 to fall below consensus first-call estimates.

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