- The Washington Times - Tuesday, January 14, 2003

Shares of Webmethods have risen to their highest levels in more than a year in the wake of the company's announcement that it would come close to making a profit for the last financial quarter of 2002.
Executives of the Fairfax-based maker of business software surprised some investors and analysts Jan. 6 when they announced that revenue and earnings per share for the last three months of 2002 would surpass previous estimates.
Investors responded last week by raising company shares $2.24, or 25.8 percent. Yesterday, shares rose an additional 76 cents on the Nasdaq Stock Market to close at $11.65, a 52-week high.
Webmethods said its revenue for the last quarter of 2002 would fall between $46 million and $51 million. If the company reaches the high end of that projection, it will have posted positive earnings per share for the first time. Most analysts predict the company will post between a 1-cent-per-share loss and 1-cent-per-share gain. The company will announce official earnings on Jan. 21.
David Hilal, a software analyst with Arlington-based Friedman, Billings, Ramsey Group Inc., said he expects a 1-cent-per-share gain based on Webmethods' revenue prediction for the last quarter of 2002. He originally predicted a 3-cent-per-share loss.
"A 4-cent upswing is pretty meaningful," he said. "It's materially ahead of what we predicted."
Investors responded to the revenue prediction, but also saw value in a potential company profit.
"The significance of achieving profitability was not lost on investors," Mr. Hilal said.
It has been a tough few years for Webmethods and most other companies in the software sector. Webmethods had been one of the hottest initial public offerings of 2000, when its price rose to more than $300 per share. As the economy slowed, the information technology budgets for most companies shrank and software firms lost revenue.
Analysts said Webmethods managed to survive the down period by gradually cutting into the business of its competitors, including BEA Systems, Tibco and even IBM.
"Webmethods has taken market share from many peers in the business," Mr. Hilal said. "I think they have differentiated themselves as one of the best players in the business."
Webmethods' latest platform release, called Webmethods 6, appears to have attracted many new customers, analysts said. The company saw increased revenue from licensing of its software.
Some analysts indicated that Webmethods' stock price would dip once the excitement over the increased revenue subsided. Few said the price was unjustifiably high.
"We believe these results should at least allow the company to maintain its recent gains in the stock as Webmethods continues to execute and customers place integration software high on their priority list," Merrill Lynch software analyst Christopher Shilakes said in a research note.
As for a broader rebound of the software or technology sectors, analysts said Webmethods' results were unlikely to trigger anything dramatic.
They said that it was a positive signal, and that the worst times were likely in the past.
"I don't know if I would use the word 'rebound,' but I would use the world 'stable,'" Mr. Hilal said.


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