Websense Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Websense (NAS: WBSN) dropped 15% in intraday trading Wednesday after reporting disappointing earnings and lowered guidance for end user billings.

So what: Second-quarter non-GAAP EPS of $0.35 grew 13% year over year but fell short of the $0.38 consensus estimate. GAAP EPS rose 57% to $0.11, and revenue rose 11%. Approximately $2.9 million of the company's $3.0 million increase in pre-tax income was the result of an accounting change regarding revenue recognition. Likewise for $3.2 million of the $8.8 million increase in revenue.

Now what: Management blamed the disappointment on macroeconomic factors in Europe and a sales reorganization. The press release touted a number of positives, including increasing demand for security in light of a number of well-publicized computer attacks. But meaningful EPS growth could prove elusive with the company facing a tough economy, in the middle of a sales reorganization, and deriving almost all of its second-quarter pre-tax income increase from an accounting change. That makes it hard to justify the non-GAAP P/E ratio of 19 times and GAAP P/E ratio of 35 times based on yesterday's intraday price of $22.68.

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At the time thisarticle was published Fool contributor Cindy Johnson does not own shares of any company named above. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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