After missing its Q1 revenues estimate, Lionbridge is taking a hit in the stock market, down about 10% over the past two weeks.
And here’s why, according to an AP article: “The company — whose services help clients such as Microsoft Corp. globalize their products — posted a loss of $217 thousand, or nil per share, compared to a profit of $693 thousand, or 1 cent per share. Revenue was $38.8 million, down from $39.9 million last year.”
These are tough numbers to swallow, particularly at a time when it seems so many companies want to take their businesses global. But I do think the market is overreacting a bit. Lionbridge is diversifying itself from relying so heavily on large tech clients like HP and Microsoft. When the tech sector coughs, Lionbridge gets the flu, and the tech sector has been coughing a lot lately. Fortunately, Lionbridge is winning non-tech clients; it claims a tech/non-tech client ratio of 55%/45% today (tech clients comprised 70% of all clients just 18 months ago).
But analysts seem to be stuck on that pricing pressure comment from CEO Rory Cowan. Pricing pressure is a recurring theme in this industry. I do believe Lionbridge’s forthcoming hosted translation memory platform is a good step in the right direction, but I’m not sure if it will be enough to get the margins back up again long term. Keep in mind that these large enterprise clients know full well what translation should cost because they have translators on staff and multiple vendors on call. It’s a brutal market, no question.
But the good news is that the need for Lionbridge’s services isn’t going away anytime soon; the globalization services market has not even begun to take off. And the company is getting its production costs down thanks to its two India operations centers. i think if Lionbridge can do more to move up that so-called value chain it will do just fine.
On a separate note, Bowne Global Solutions posted a healthy increase in revenues for Q1. So why do I keep hearing rumors that they’re up for sale and that Lionbridge is a potential suitor?
So many rumors, so little time…