Taleo Beats the Street, Turns a Profit and Sees Its Stock Plummet

Now here’s a conundrum: On Wednesday Taleo reported the best quarter and the best year it’s had in, well, in years. On Thursday, a day the market was actually up, Taleo’s stock closed at $17.12, down 18.4 percent.

Why?

One answer came during Taleo’s call with the financial analysts Wednesday afternoon, when company officials talked about the investment Taleo would be making in staff, product development and in the expansion of its data centers. Analyst Nate Swanson of ThinkEquity Partners, in a report Thursday, describes it as “cost-heavy,” adding quickly “that while this investing will have a minor near-term negative impact on operating margins, the payback will be greater long-term growth and operating.”

Swanson, as you might suspect, thinks this is for the good and recommends buying Taleo stock.

Wedbush Morgan Securities, apparently thinks otherwise, as it downgraded Taleo to a Hold from the Buy it issued just about three weeks ago.

Unless you had the bad timing to buy Taleo right after Christmas when it closed at almost $34 a share, the news coming out of Wednesday’s analyst call most recruiters would consider good. Besides the investments, Taleo said it had $200 million worth of orders in hand and that its customer base had grown by almost 800 clients, most of them signing on with the Taleo Business Edition, an over-the-Web ATS designed for small and mid-sized businesses.

Taleo’s numbers tell the story of the turnaround from loss to profit:

2007

2006

Q4 2007

Q4 2006

Revenue

$127.9

$97.0

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$34.5

$26.5

Income

$3.7

-$5.5

$1.1

-$0.04

Earnings per share for the quarter were 14 cents. Analysts had expected 13 cents. For this year, Taleo told analysts it expected revenues to be in the $154-$158 million range.

Moving to profitability and continuing to grow not only provides reassurance for recruiters who bought into the Taleo platform, but it means the company is continuing to expand its reach as it adds new products and enhances existing ones. Just minutes before the analyst call the company announced that Taleo Performance was coming out of its beta period. The product manages performance reviews, succession planning and goal setting and fulfillment, among other parts of the talent management spectrum. Taleo Performance was discussed during the analyst call, as company executives detailed a rollout plan offering it first to large enterprises before it becomes available to the smaller companies.

John Zappe is the editor of TLNT.com and a contributing editor of ERE.net. John was a newspaper reporter and editor until his geek gene lead him to launch his first website in 1994. He developed and managed online newspaper employment sites and sold advertising services to recruiters and employers. Before joining ERE Media in 2006, John was a senior consultant and analyst with Advanced Interactive Media and previously was Vice President of Digital Media for the Los Angeles Newspaper Group.

Besides writing for ERE, John consults with staffing firms and employment agencies, providing content and managing their social media programs. He also works with organizations and businesses to assist with audience development and marketing. In his spare time  he can be found hiking in the California mountains or competing in canine agility and obedience competitions.

You can contact him here.

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5 Comments on “Taleo Beats the Street, Turns a Profit and Sees Its Stock Plummet

  1. “Most of them signing on with the Taleo Business Edition” is not really great news for Taleo- its good that they are closing deals, but @ under $100/user it could be a hard road with the cost structure involved.

    I’m pleased to hear it because it confirms that our slice of the market is healthy- as we have been feeling ourselves- record 4th Q of 2007 and 1st Q 2008 looking good so far.

    The second possible problem is $3.7M income on $128M of top line- 2.9% margins may thrill investors in supermarkets, but not tech companies, esp. just before more investment is needed to boost margins.

    “reassurance for recruiters who bought into the Taleo platform” is not quite the situation- there are two distinct platforms, and the small one seems to have all the action.

    I think its a key move for them to get into performance. We need to do the same thing because I think recruiting and performance are the core of TM, and how can you tell how well you recruited anyway ?

    Question is, does moving beyond the core make sense?

  2. Thanks for your post Martin, but as an end user it doesn’t give me confidence to know the CEO of an ATS vendor (you) has nothing better to do with his time then posting attach ads about other vendors.

    Tim Meadows

  3. Thanks for your post Martin, but as an end user it doesn’t give me confidence to know the CEO of an ATS vendor (you) has nothing better to do with his time then posting attach ads about other vendors.

    Tim Meadows

  4. Thanks for your post Martin, but as an end user it doesn’t give me confidence to know the CEO of an ATS vendor (you) has nothing better to do with his time then posting attach ads about other vendors.

    Tim Meadows

  5. Attack ? I’d say not- I think Taleo is one of the best players in the space- I say so often when the subject comes up. My post noted that their moving into performance was a good thing; something that we should do too.

    OTH, the question of the moment is why the shares dropped- and I was offering some reasons.

    Its my JOB to have nothing to do all day….so I’m ready for action! We have an outstanding team at my firm, the last thing they need is me involved with anything important.

    Say….what are YOU doing posting on this site Tim- nothing better to do?

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