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eFuture (EFUT) disappoints

June 10th, 2009 · No Comments

Good job we were out of it (a bit too early, admittedly), but this is a rare event indeed, as this company used to be regular as clockwork and so far hadn’t shown even a single sign of being affected by any economic headwind. No more…

What we particularly didn’t like was this though:

  • Revenue from software license sales decreased 34.5% year-over-year to RMB5.0 million (US$0.7 million).

These new license sales are the driver of next year service revenue’s, so they better pick up in the next quarter, otherwise the whole growth model will come unstuck, as license sales are the engine that drives this car.

On the other hand, this is the quarter that matters the least. Here is what the CEO had to say about it:

  • Mr. Adam Yan, Chairman and Chief Executive Officer of eFuture, said, “We continued to make steady progress in what has historically been our seasonally low quarter. During the first quarter, two of our strategic business units (“SBUs”), including Logistics and Department Store and Shopping Mall, faced headwinds from ongoing softness in the broader economy as our retail clients in these segments delayed new store openings.
  • However, the performance of the other four SBUs remained solid. In fact, our Key Accounts SBU has signed a number of large contracts with several key clients, including Lianhua Supermarket, one of the largest supermarket players in China. The associated revenues from these contracts were not fully reflected in the first quarter revenue, rather they were recorded as unrecognized revenue due to their relatively longer project completion time.
  • In addition, our service fee revenue increased 51.3%, which demonstrates that our strategy to mitigate the impact of future seasonality by growing our eService and value-added service fee income gained strong momentum in the first quarter. We expect this trend to continue, and believe that our eServices, including SaaS (Software-as-a-Service), represent key growth drivers for the mid- to long-term.

And he also noticed retail sales are increasing nicely in China. So, if you have to have a soft quarter, let it be the one that matters least. The resulting sell-off could provide a nice entry point, although we think it won’t rally strongly before the second quarter results are in, as people want to see whether the softness doesn’t last, especially those software license sales..

Tags: EFUT