Taleo Beats the Street, Turns a Profit and Sees Its Stock Plummet

Now here’s a conundrum: On Wednesday Taleo reported the best quarter and the best year it’s had in, well, in years. On Thursday, a day the market was actually up, Taleo’s stock closed at $17.12, down 18.4 percent.

Why?

One answer came during Taleo’s call with the financial analysts Wednesday afternoon, when company officials talked about the investment Taleo would be making in staff, product development and in the expansion of its data centers. Analyst Nate Swanson of ThinkEquity Partners, in a report Thursday, describes it as “cost-heavy,” adding quickly “that while this investing will have a minor near-term negative impact on operating margins, the payback will be greater long-term growth and operating.”

Swanson, as you might suspect, thinks this is for the good and recommends buying Taleo stock.

Wedbush Morgan Securities, apparently thinks otherwise, as it downgraded Taleo to a Hold from the Buy it issued just about three weeks ago.

Unless you had the bad timing to buy Taleo right after Christmas when it closed at almost $34 a share, the news coming out of Wednesday’s analyst call most recruiters would consider good. Besides the investments, Taleo said it had $200 million worth of orders in hand and that its customer base had grown by almost 800 clients, most of them signing on with the Taleo Business Edition, an over-the-Web ATS designed for small and mid-sized businesses.

Taleo’s numbers tell the story of the turnaround from loss to profit:

Earnings per share for the quarter were 14 cents. Analysts had expected 13 cents. For this year, Taleo told analysts it expected revenues to be in the $154-$158 million range.

Moving to profitability and continuing to grow not only provides reassurance for recruiters who bought into the Taleo platform, but it means the company is continuing to expand its reach as it adds new products and enhances existing ones. Just minutes before the analyst call the company announced that Taleo Performance was coming out of its beta period. The product manages performance reviews, succession planning and goal setting and fulfillment, among other parts of the talent management spectrum. Taleo Performance was discussed during the analyst call, as company executives detailed a rollout plan offering it first to large enterprises before it becomes available to the smaller companies.