Broderbund Software Inc. shares fell 12 percent Thursday on concern that the company’s revenue from its popular “Riven” fantasy game hasn’t translated into earnings and that the company is too dependent on the product.
Shares of the entertainment and education software maker fell 2-13/16 to 21-1/16 in trading of 2.33 million, more than five times the three-month daily average of 403,900. The stock declined 7/16 on Friday, on volume of 856,000 shares, closing the week at 20-5/8.
Broderbund, which reported earnings in line with analyst estimates, said its fiscal second-quarter revenue rose 77 percent, driven mainly by sales of “Riven,” the sequel to its best-selling game “Myst.” That revenue growth wasn’t reflected fully in the company’s earnings, which rose 21 percent.
“When a company blows out the top line, why doesn’t it translate to the bottom line?” said analyst Jeff Goverman of Pacific Crest Securities, who rates the stock “market performer.” “‘Riven’ is at its peak. For a software company not to have much leverage on peak earnings makes people feel ‘what happens if “Riven” slows?”’
Broderbund’s product costs, which it calls “cost of revenues,” rose 125 percent to $34.4 million from $15.3 million in the year-earlier period, mainly because of higher royalty payments related to “Riven” and “Myst.” The company also cited lower profit margins on sales of products that it distributes for affiliated companies, and a higher number of rebates and returns of productivity software than last year.
Total operating expenses rose 9.7 percent to $36.9 million. Those costs reduced revenue and cut into the company’s earnings.
Entertainment product revenue rose fourfold to $32.5 million from $6.5 million, paced by strong sales of “Myst” and “Riven.” In contrast, educational product revenue, one of the company’s core areas, fell 24 percent to $9.3 million.
“They’re really struggling in every product area,” said Stephen Dube, an analyst at Wasserstein Perella Securities who rates the stock “hold.” The company has lost market share in almost every category, he said, raising concern that the company is riding on a one-hit wonder with “Riven.”
The company reported quarterly net income of $3.88 million, or 18 cents a diluted share, compared with profit before a charge of $3.2 million, or 15 cents, a year earlier. Analysts had expected 19 cents a share, the average estimate of analysts polled by IBES International Inc.
Some stocks that moved substantially or traded heavily Friday:
McDonald’s, rose 2 at 57-3/8.
Bear Stearns joined other analysts in upgrading McDonald’s stock a day after the fast-food restaurant chain said it planned to roll out a just-intime food preparation system across the country and will look for other ways to cut costs.
Pfizer, rose 1-3/8 at 97-3/4.
The company received approval from the Food and Drug Administration to market a new impotence drug, Viagra.
Manugistics Group, rose 15-3/16 at 53-3/16.
The software company posted better-than-expected profits after the market closed Thursday. The company earned $6.7 million, or 25 cents a diluted share, in the quarter before one-time charges, up from $3.5 million, or 16 cents a share, a year ago.
Intel, rose 11/16 at 78-7/8.
The chip-maker said Andrew Grove is relinquishing his job as chief executive. Grove, who will stay on as chairman to focus on broader strategic issues, will be succeeded by Craig Barrett, Intel’s president and chief operating officer.