Talk about bad timing: Sapient today reported third-quarter net income fell 15 percent to $22.3 million, just four days after Publicis Groupe said it would pay a 44 percent premium for the digital marketing player.
Revenue for the Boston-based company, however, rose 9 percent to $364.6 million. That said, Sapient's gross margin contracted, its expenses rose and its operating income declined to $33.8 million, from $37.6 million in the same period last year.
Citing the pending $3.7 billion acquisition offer from Publicis, Sapient did not host an investors' call to discuss the results, which fell below analysts’ expectations. Rather, the company issued a terse press release highlighting some of the quarter’s better numbers.
In a report on the results, Pivotal Research Group's Brian Wieser said that "while one quarter does not necessarily make for a long-term trend, coming as close as it does to the timing of the transaction, without any indication of the weaker quarterly results to come days later, is potentially alarming."
Wieser added that "growth of SapientNitro, whose activities are primarily digital, compares unfavorably this quarter with most of the other agency holding companies whose activities are not commonly viewed as such."
Putting the results in context, Wieser noted that the rate of growth trailed results in previous quarters, when revenue grew organically in high single or low double-digit percentages.
"More importantly, it is well below the kind of growth we think is needed to justify the premium that Publicis paid for the company," Wieser said. "Put differently, it makes the significant premium paid for Sapient appear even more substantial than it already does, with essentially all of the value of synergies associated with the transaction accruing to Sapient shareholders.”
Wieser further noted that margins improved at SapientNitro, but added much of the company's current growth came from that lower-margin digital agency business. That was “more than offset” by contraction at Sapient's faster-growing consulting services, he said.