Jive Software Might Be A Sell, As 'Turnarounds Aren't Easy'

• Jive Software Inc JIVE shares are down 22 percent year-to-date, declining steadily after trading above the $6 mark in early February.
• Morgan Stanley’s Stan Zlotsky downgraded the rating for the company from Equal-weight to Underweight, while reducing the price target from $5 to $4.
• With the company being in the midst of a turnaround, there is increased execution risk, made worse by challenging end-market demand and competition, Zlotsky said.

Elisa Steele is scheduled to take over as Jive’s permanent CEO in February. Analyst Stan Zlotsky believes that the company’s plans to transform its product and sales strategy into “a high-velocity model” appears to be “appropriate” given the end-market dynamics.

Saying that the model shift is necessary, Zlotsky added that it creates “near term pain,” as it poses “increased execution risk,”

In the report Morgan Stanley noted, “On the product side, Jive's new set of work productivity solutions are either free or carry a low ASP, which impacts initial deal sizes and creates tough comps from prior years.” Moreover, Zlotsky expressed concern regarding whether Jive’s customers would be willing to pay for the company’s freemium products, even if these products added good value, given the competition.

“On the distribution side, pivoting from an enterprise selling motion to one driven by inside sales takes time and could result in heavy attrition within the existing sales force, some of which we saw in Q2,” the analyst added.

Zlotsky believes that Jive would be able to return to high single-digit growth in the future, however, the stock is likely to underperforming in the near term.