May 1, 2008

Stock Prices Of Vendors To Charities Getting Battered

By Tim O'Reiley
The waves of bad news that have battered Wall Street this year, stemming mostly from the meltdown of the subprime mortgage market, rocked the three public companies drawing most or all of their business from nonprofits.

The stock prices for Blackbaud, Kintera and Serenic all finished the first quarter well below the levels of a year earlier. The initial public offering for a fourth, Convio, continued in a holding pattern with no end in sight.

Most of the other companies on The NonProfit Times list of 14 that draw at least some of the business from nonprofits stumbled as well, some of them badly. Only three of the companies posted gains for the 12 months ended March 31, led by Salesforce.com at 26 percent, while the declines ranged from 10 percent at eBay to 99 percent at Quebecor World, which entered Chapter 11 bankruptcy proceedings this past January.

Eleven of the companies hit their 52-week lows during the first quarter, including five during the tumultuous week starting March 17, as investors worried that the near collapse of investment bank Bear Stearns might signal a much larger financial crisis.

However, except for Blackbaud, Kintera and Serenic, the companies on The NonProfit Times list generate only a small part of their revenues and net incomes from their nonprofit clients and were buffeted by numerous other factors.

San Francisco-based Salesforce.com, for example, lists 38,000 clients for its customer relationship software packages, but only 2,700 nonprofits. Quebecor World, one of the world's largest printers, filed for bankruptcy protection in both the U.S. and its home of Montreal due to problems in Europe and a crushing debt load incurred to support commercial printing operations. Its direct mail printing and logistics divisions, where the bulk of its nonprofit clients were concentrated, account for less than 10 percent of revenues.

The questions hanging over the nonprofit sector burst into prominence on April 3. Charleston, S.C.-based Blackbaud's stock sank as much as 17.7 percent after Jeffries & Co. analyst Ross MacMillan cut his rating from "buy" to "underperform," citing concerns that nonprofits might slash their technology spending.

"Blackbaud is beginning to face the headwinds of a slowing economy and we think nonprofits are scrutinizing deals more vigorously," MacMillan wrote of the company's donor management systems. "We believe donations have started to slow for some nonprofits and fears of this being a broader and continuing trend have started to impact spending."

But just hours later, William Blair & Co. analyst John Neff retaliated with a note taking MacMillan to task for not backing up his "blanket statement" with facts. "Unfortunately, in the current market environment, further substantiation is not always necessary," Neff wrote.
To back his opinion that Blackbaud's market is "relatively resilient," he cited a 42-year history of nonprofit donation growth, with a flattening taking place during recessions. When combined with several corporate factors, such as 70 percent of revenues flowing from existing clients, he wrote that he believes Blackbaud's exposure to problems was minimal.

In a conference call on Feb. 7, Blackbaud CEO Marc Chardon said he had not seen any fallout due to the economy. "What typically has happened over the past 40 years is that the amount of donations that happen rise every year," he said. "And that's relatively insulated from both economic upturn and downturn."

Kintera, based in San Diego, and Convio, in Austin, Tex., shied away from predictions. "We are watching and hoping (recession) does not have an impact on clients and the market as a whole," said Convio Spokesman Tad Druart.

Representatives of both firms tried to distinguish themselves from Blackbaud as selling software packages instead of server-based systems, requiring less initial investment.
Druart would not comment on how the turbulence might affect Convio's attempt to go public. According to the research service Hoover's, the number of IPOs shrank to 12 during the first quarter, compared to 70 in the fourth quarter and 44 during the first quarter of 2007.

Kintera Spokeswoman Tara Plappert declined to comment on whether market troubles had influenced the company's stock price, down to 58 cents a share on March 31. The stock had hovered around $1 a share for the early part of the year, but headed downward after announcing on March 13 that fourth quarter revenues declined 2 percent from one year earlier to $9.5 million, although the net loss declined by more than half to $3.1 million.

Kintera's problems went a step further. On April 8, the company announced it had received a letter from the NASDAQ exchange stating that for 30 trading days it had fallen short of the rule requiring the stock price be at least $1 a share. This puts Kintera on a form of probation that will be lifted if the stock closes at $1 or more for 10 straight trading days by September 29. Otherwise, further steps could follow leading to delisting. The company did not provide additional comment.

Other companies with a nonprofit presence included:

*Serenic is traded on the Toronto Stock Exchange.