In my valuation, it's still not time to take the major position
in Open Text based on the current valuation and potential risks.
Yes, Open Text does have the technology lead and all the pieces
necessary for the Web-based document management which is
projected to grow rapidly in the next few years. It's why
it appears to be an exciting opportunity to invest in the first
place.
Yet, the current stock price still doesn't justify risks
involved:
1. Can the management capitalize its technology lead and
establish the product as the unshakable market leader ?
They have the current market lead, but it's too early
in the game and, in some ways, the web-based media is
still an extension of the client-server based approach.
(So it's questionable to divide both markets independently.)
I'm not concerned that the competitions will catch up in the
features and software architecture. But they will extend
their products to cover enough ground and diffuse the
technology gaps. That would be enough to shift the battle
to the marketing and sales since the best products frequently
do not win in the technology world. I also see the competitions
will only come from the current document management players
rather than new products from software powerhouse such as
Microsoft. Unlike technologies such as push technology,
this market is sophisticated enough to prevent a new product to
cut in quickly.
2. Can they build partnerships and OEMs to establish in the
vertical markets before the competition catch up ?
With their products, I actually like their horizontal approach.
(as opposing the vertical approach of Documentrum's.) But
to make the horizontal approach to work, they have to get into
vertical markets through the 3rd parties.
3. The valuation risks
a. Still no profits.
b. Given the uncertainty in its market, it should not be priced
as the future market champ. (Yes, it's highly subjective.
But I'm looking from a marketing perspective rather than
technology perspective.)
c. Selling pressure from the employees with the $4 reduced option
price. It won't be major shares. But it will still a factor
until the volume picks up.
With all the risks, Open Text could still be a well-justified
investment given a proper valuation which prices the company as
a successful me-too company rather than the future leader in the
document management market. But given the current bear market run on
the technology stocks, there are plenty of bargains which offers the
similar potentials as OTEXF with much lower risks. Leaving out DCTM,
there are still Forte, the help-desk group, the data warehouse group,
etc. So why pick up OTEXF at the current price ? |
