In light of recent speculation surrounding news that the shares of Sourcefire, dropped nearly 30 percent in trading yesterday, following a reported first-quarter loss of between $2.2 million and $2.6 million, several facts must be kept in mind:
- Sourcefire is still an open source company:
Despite the fact, that the company is at the mercy of the public markets and its shareholders now, its business model is fundamentally the same as any other commercial open source company. Some counter that this shouldn't affect the company's numbers in such a drastic fashion and if it does then the company might have made a mistake by going public.
What is my take? I agree wholeheartedly. However, open source companies can find success on the public markets, Red Hat has proven that beyond a shadow of a doubt. Sourcefire, who went public in far more pragmatic market conditions than Red Hat (2007 compared to 1999), will also face more rational approaches to purchasing from enterprise customers. Accordingly, it is prudent to expect the company's revenue prospects and therefore its quarterly reports to reflect such an environment.
This explanation may sound overly simplistic but it represents a call to look past the immediate present before jumping to premature conclusions. Especially after Sourcefire CEO, E. Wayne Jackson issued the following statement:
"Historically, the first calendar quarter has been the slowest quarter of the year for us due to seasonal factors," Jackson said. "This year, we saw an exaggeration of that trend due to a smaller than expected initial order from a substantial and strategic new account and an unusual number of transactions delayed or deferred very late in the quarter. This was particularly dramatic in the federal sector where we saw a number of delays in the processing of awarded procurement transactions."
Could this be some sort of stall tactic or sleight of hand? Once again, only after another quarter has hit the books will it be obvious. Far from a call for some 'unearned slack' this serves as a reminder of the reality that it is sustained performance (good or bad) that a reputation makes. This goes for open source and closed source companies alike. Regardless if the company hit the ground running with an unexpectedly strong quarter, I would echo the same sentiment. Extreme circumstances aside, one quarterly report is not capable of validating or lessening the case for a business model or a company.
Since one quarter (within reason) can't make or break a company built for the long haul, the judgments being passed down from market watchers and stock analysts alike will have to be watered down with the passing of time. Sourcefire's valuation and quarterly numbers will resonate with and benefit greatly from the concomitant increase in acceptance of the open source model by various public sector organizations. The same types which already compose the majority of Sourcefire's larger customer/user base. In fact, the company's software is already used by more than half of the 30 largest U.S. government agencies, including the FBI, the Defense Department and the Department of Homeland Security. Therefore, it isn't far fetched to project a significant amount of growth as the public sector continues to mirror adoption rates being currently exhibited by the private sector.
Consistent with the above points, I'm going to hold tight to my predictions of gloom and doom until more data is available. At the point where there is valid substantiation for a forecast, it will be time to both form and offer one.
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