Does Websense Make Sense?

Websense Inc. (WBSN-NASDAQ): Despite the items in questions and despite the fact that on a net-net basis you could argue in favor of the results at or ahead of estimates, this just doesn’t usually cut it for what is still deemed as a high-growth stock.  Shares closed up 1% at $24.35, but after-hours trading has it down over 10% at $21.75.  Its 52-week trading range is $17.85 to $34.70 on a split-adjusted basis.

Revenue was a record $47.3 million, but slightly below the company’s previously issued revenue guidance of $47.5 to $48 million. Revenue reflected a change in the company’s revenue recognition policy from monthly to daily revenue recognition, as well as distributor marketing payments and channel rebates.  The company is claiming that the combined effects reduced revenue by approximately $1 million.  Non-GAAP income was $0.25, in line with $0.25 estimates, but GAAP income was posted at $0.17.  Gross billings invoiced to customers in the fourth quarter were $69.0 million before $578,000 in distributor marketing payments and channel rebates; total deferred revenue to $220.3 million at the end of December.  The company is saying that its new relationship with Ingram Micro in North America will be additive to earnings and revenues by mid-2007.  It ended with roughly 25 million seats under subscription.

As far as guidance for Q1 it offered $40 to $43 million in billings; Revenues $48.5 to $49.5 million net of rebates and channel marketing payments of $700,000 to $1 million; Margin is expected at 91-92% non-GAAP and 9-10% of revenue on GAAP basis.  Unfortunately revenue expected from the street is around $49.65 million, so its days of organic major outperformance are seeming farther and farther back in history.  Its non-GAAP EPS is also being put at $0.19 to $0.21, but estimates are $0.25.  That is also after the $88 million price tag it paid for PortAuthority Technologies.

Jon C. Ogg
January 30, 2007