MicroStrategy Inc.'s share price plummeted 62 percent yesterday after the Vienna-based software company announced that its 1999 revenue was much less than it originally reported and that the year's profit was actually a loss.

Stunned investors slashed $11.1 billion from the highflying technology company's market value--and $6.1 billion from the personal fortune of Michael J. Saylor, the founder and chief executive.

Saylor said auditors advised MicroStrategy to change the way it counted revenue from a series of complex deals with other companies. The auditing firm, PricewaterhouseCoopers, had worked with MicroStrategy for the past two years on the reporting of its quarterly results, MicroStrategy said in a statement.

"We thought we had the right treatment in 1999, our auditors thought we had the right treatment," Saylor said. But now, Saylor said, "it's in everybody's best interest for us to clear the decks and to make sure there's no lingering liabilities."

Where the company originally counted large payments up front on multiyear deals, it will instead spread the revenue over a longer period, Saylor said.

MicroStrategy's dramatic plunge was one of the most powerful demonstrations yet of the volatility of Internet and other high-tech stocks--and the questionable nature of the numbers some companies have been reporting. The surprise announcement that one of the Washington area's star companies was restating financial results for the past two years tapped into investor anxiety about a technology revolution that some fear may also be a speculative bubble.

"We think this is the wake-up call for investors that have bought Internet-related companies," said Jon Moody, a financial analyst with Scott & Stringfellow in Richmond. "Maybe it calls into question how we go about valuing these stocks."

The MicroStrategy meltdown also highlighted an increasing sensitivity among investors to regulators' concerns that many companies are improperly measuring their financial performance, inflating their success. When companies need to restate the results, the consequences can be disastrous for shareholders.

"There's been absolutely no fraud nor hint of fraud here," Saylor said in an interview yesterday, adding: "I don't think investors were misled."

But Howard Schilit, who analyzes corporations' accounting for institutional investors, said, "It's a horrible scenario for the investors who relied upon the financial reports."

Schilit's Rockville-based firm, the Center for Financial Research and Analysis, had issued two reports in recent months questioning MicroStrategy's accounting.

"I think that they were pushing the envelope a little bit," said Joephhal & Co. analyst Bert Hochfeld. "They have obviously classified revenue more aggressively than other people have classified it."

Securities and Exchange Commission Chairman Arthur Levitt Jr. sounded an alarm about corporate accounting more than a year ago, saying some companies "operate in the gray area between legitimacy and outright fraud . . . where the accounting is being perverted." Levitt said one of the prime areas of distortion was the premature booking of revenue.

In December the SEC issued new guidelines intended to clarify existing accounting principles on how companies should count revenue. Those guidelines contributed to MicroStrategy's decision to restate its results, Saylor said.

But even after the guidelines were issued, MicroStrategy reported fourth-quarter and year-end results using its old accounting methods. It also included financial results in documents filed with the SEC in February and March announcing plans to sell additional shares to the public. Those plans focused renewed attention on the numbers, Saylor said.

MicroStrategy said yesterday that it was postponing the offering, which would have allowed insiders such as Saylor to sell a portion of their holdings.

A spokesman for Pricewaterhouse Coopers declined to comment, saying that as a matter of policy the firm does not discuss client matters.

"The accounting rules governing the software industry, and in particular software revenue recognition, are complicated," a MicroStrategy statement quoted Pricewaterhouse Coopers as saying. "This is particularly true in an evolving business like MicroStrategy's."

MicroStrategy, which helps businesses mine information from vast databases and distribute information over the Internet, said that instead of claiming a 1999 profit of $12.6 million, as previously announced, it will show a loss of about $34 million to $40.3 million.

Revenue for last year, previously pegged at $205.3 million, will be reduced to about $150 million to $155 million. The company will make smaller adjustments for 1998, when the kind of complex deals in question had not yet assumed such importance.

The stock market screamed its dismay. Shares that traded for $226.75 Friday sank to $86.75 at yesterday's close. As recently as March 10, the stock was trading for $313.

The Washington Post Co.'s Internet subsidiary does business with MicroStrategy, and a Post Co. vice president serves on the MicroStrategy board.

Yesterday, Saylor's stake in MicroStrategy shrank from $9.9 billion to $3.8 billion. In an interview, Saylor called that "paper wealth" and added: "I mean, it comes, it goes, right?" Saylor noted that if he tried to sell several billion dollars' worth of stock, the value would have plunged.

Saylor said that after signing off on a recent filing that MicroStrategy made with the SEC for the proposed secondary stock offering, the company's auditors decided to "triple-check everything." Late last week, senior officials at the auditing firm alerted MicroStrategy that it should take another look at its accounting.

Amid the SEC's heightened concern about revenue accounting, the thinking at Pricewaterhouse Coopers was changing, Saylor said.

Saylor and company officials spent the weekend huddled with accountants and other advisers, and they concluded that the numbers needed to be restated, Saylor said. MicroStrategy's chief financial officer yesterday briefed the SEC, which had not been directly involved in the company's action, Saylor said.

In response to the SEC's December guidelines, at least 32 companies have changed the way they measure revenue, a recent study by accounting analysts at investment firm Bear, Stearns & Co. found. "Since SAB 101 [the SEC bulletin] is not changing" generally accepted accounting principles, "companies conforming to it must be correcting an error in previously issued financial statements," the Bear Stearns report said.

Saylor said MicroStrategy's original accounting made more sense to him than the accounting it has decided to adopt. "Accounting is not necessarily common sense," he said.

At issue for MicroStrategy was the timing of when it booked revenue from deals with other companies. Revenue the company had counted upfront will now be deferred over a longer period.

The company moved into "some interesting gray zones" last year as it began signing bigger and more complicated deals to provide software and services to other Internet companies, Saylor said.

"The company has concluded that certain of its software sales that include service relationships will be accounted for using contract accounting, which spreads the recognition of revenues over the entire contract period as opposed to separating it between the software and services components," the company said in a news release.

"The effect of these revisions is to defer the time when revenue is recognized for large, complex contracts that combine both products and services," the company said.

Fickle fortune

The value of chief executive Michael Saylor's shares of MicroStrategy fell about 70 percent from March 10 to yesterday.

Saylor share value, in billions

March 10 $13.6

Yesterday $3.8

SOURCE: Bloomberg News