WASHINGTON (04/14/2000) - MicroStrategy, which recently revised its revenue figures for the past three years, revealed Thursday that it is under investigation by the Securities and Exchange Commission.
On March 20, the software company announced that its "evolving business model" and SEC accounting recommendations issued in December led it to change the numbers for 1998 and 1999. The company updated those numbers Thursday in a revised SEC filing, which also revised 1997 revenue figures.
On March 21, MicroStrategy backpedaled, saying the SEC rules had not prompted the rejiggering. The company said the new figures reflected a change in how the company reports revenue for its complex contracts, particularly those involving both software and services. The company said it now uses contract accounting, which spreads the recognition of revenues over the entire contract period instead of counting much of it up front.
Analysts have staunchly defended MicroStrategy, but Nasdaq investors have been less forgiving. The company's stock peaked at $333 on March 10. It then began to retreat, and when the news about the accounting change came out on March 20, the stock fell $140 to close at $86.75. In late-afternoon trading Thursday, the shares were priced at just over $39.
"The SEC has requested that we provide them with certain documents concerning the revision of our financial results," the company said in its filing. "We are cooperating with the SEC in connection with this investigation, and its outcome cannot yet be determined." A MicroStrategy spokesperson declined further comment. An SEC spokesperson would neither confirm nor deny that an investigation is under way. In its filing, MicroStrategy said the SEC told the company that the investigation "should not be construed as an indication ... that any violation of law has occurred."
MicroStrategy also mentioned the dozen or more private class actions filed against it in the past few weeks, pledging to "defend this matter vigorously."
In Thursday's filing, MicroStrategy reported that it reduced its 1999 revenue to $151.3 million from $205.3 million. It is now reporting a loss of 44 cents per diluted share for 1999, rather than a net gain of 15 cents per diluted share. Revenue figures for 1998 dropped to $95.5 million from $106.4 million.
The company is now reporting a net loss of 3 cents per diluted share for 1998, instead of a net gain of 8 cents per diluted share. Additionally, 1997 revenues were tweaked down to $52.6 million from $53.6 million. For 1997, the company is now reporting a net loss of 2 cents per diluted share, rather than saying that it broke even.