Looking at the results this week from Red Hat (NYSE:RHT), Oracle (Nasdaq:ORCL), and TIBCO (Nasdaq:TIBX), it's pretty clear that there hasn't been a big re-acceleration in the market and conditions are still pretty difficult. That's not too surprising, really, but it does create uncertainty for these stocks in what is already a nervous market. I continue to like TIBCO, but the company definitely needs to start improving its sales and marketing strategy and execution. While the the shares do seem undervalued today, the valuation already incorporates a re-acceleration of growth and the company had best start delivering in the next year, or the stock will definitely suffer.Fiscal Second Quarter Results Come In OkayThis was an “okay” quarter – something of a relief after a string of disappointing results, but definitely not the sort of result that will propel the stock substantially higher for the long term.Revenue fell 1% as reported from last year, but did improve 3% from the prior quarter and basically met expectations. License revenue dropped 11% from last year, but rose 5% sequentially. While that reported growth rate isn't great, the “real” growth rate may have been a little better after you adjust for deferred license revenue between the two quarters. Maintenance revenue continues to grow – up 6% and 3%, respectively, this quarter.Margins weren't all that great, but they were at least consistent with what most analysts expected from TIBCO. Gross margin declined about two points from the year ago (both by GAAP and non-GAAP accounting), while non-GAAP operating income declined 27% (GAAP operating income was down 44%) and the margin declined about seven points from the year-ago level.SEE: Zooming In On Net Operating IncomeThe Business Is Definitely Under PressureCalling around for due diligence, I don't usually hear many negative things about the quality of the products that TIBCO offers. Even rivals like IBM (NYSE: IBM) acknowledge (even if grudgingly) that TIBCO's products are good. The problem for the company is that many of its competitors (including IBM and Oracle) are more willing to compete on price than in times past. To that end, while TIBCO saw deals worth more than $100K increase 7%, deals worth more than $1 million fell 40% and the ASP dropped 21% to an all-time low for the company (just under $500k).It's not just IBM and Oracle that represent threats to TIBCO. Microsoft (Nasdaq:MSFT) is an underrated player in application infrastructure, and companies like Software AG and Pegasystems (Nasdaq: PEGA) have been showing up as more competitive lately.… But Still Very Much In The RunningBusinesses are nervous about spending right now, so it's not exactly surprising to see that price-based competition is becoming more common. Over the long term, though, I have my doubts about how many competitors are structured to compete that way and still produce acceptable margins.To that end, I think management has been making the right moves to build the company towards becoming a $2 billion business over time. While I think now addresses many of the right market segments, the marketing and sales execution has to improve. One interesting thing that comes up in the due diligence process is that TIBCO has a good quality reputation, but more than a few of those people who think well of the company aren't really aware of the full set of its capabilities. That's something management needs to address, or achieving the Street's growth targets is going to be difficult.The Bottom LineI would expect to see investors react with some relief to these results, but maybe not all that much enthusiasm. Even if the “real” sequential license revenue growth rate is better than it looks, the company isn't where it needs to be today in terms of reported growth rates or margins.Long term, I believe TIBCO can generate revenue growth in the high single digits, with slightly higher free cash flow growth. There are risks that the middleware market has fundamentally slowed and/or that competition will limit margin expansion potential. Even so, the shares look to cheap on a cash flow basis. Likewise, the company appears to be trading at the low end of the range for what large companies like IBM and Oracle have traditionally paid for companies with large service/maintenance revenue components.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Investing

    Three Companies That Will Benefit From Online Gaming

    Certain companies stand to benefit from the increasing popularity of the online gambling industry in the U.S., as well as its expanding legalization.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Stock Analysis

    The 5 Biggest Canadian Software Companies

    Explore information on the top revenue-generating software companies headquartered in Canada, which include some of the largest Canadian businesses overall.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Holacracy

    A holacracy is a system of governance where members of a team ...
  3. Apple App Store

    The Apple App Store is where customers can buy and download digital ...
  4. Mobile First Strategy

    Mobile first strategy is trend in website development where designing ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  1. What is the formula for calculating weighted average cost of capital (WACC) in Excel?

    When analyzing different financing options, companies need to look at how much it will cost to fund operations. There are ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How has Google's operations strayed from its original mission statement?

    Google's (GOOG) mission statement has been the same since its inception in 1998: "Organize the world's information and make ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!