August 10, 1999
BACKWEB TECHNOLOGIES
Our Priority Message: Buy BackWeb
John F. Powers (415) 693-3314 john_powers@rsco.com
Anne L. Brody (415) 248-4737 anne_brody@rsco.com
BancBoston Robertson Stephens BancBoston Robertson Stephens
BackWeb Technologies BWEB $17.69 08/10/99
Industry: Internet Communication John F. Powers (415) 693-3314
CHANGE IN YES/NO WAS IS Anne L. Brody (415) 248-4737
? Rating: No Buy FY Dec. 1998A 1999E 2000E
? EPS 1998A: Actual ($0.67) EPS:1Q (0.22) (0.11) A (0.07)
? EPS 1999E: No ($0.33) 2Q (0.19) (0.09) A (0.05)
? EPS 2000E: No ($0.13) 3Q (0.15) (0.07) (0.03)
52-Week Range: $15.00-36.50 4Q (0.12) (0.07) 0.02
Shares Outstanding (MM): 27.6 Year (0.67) (0.33) (0.13)
Market Cap (MM): $488.2 P/E NMF NMF NMF
Avg. Daily Volume (000): 546 Revs ($MM) 1998A 1999E 2000E
BK Value/Share: $2.78 1Q $1.6 $4.1 A $7.2
1998E ROE: NA 2Q $2.0 $5.1 A $8.3
Price/Book Value: 6.4 3Q $2.5 $5.3 $10.0
Net Cash/Share $2.87 4Q $3.4 $6.2 $12.7
Dividend/Yield: NA Year $9.5 $20.7 $38.2
3-Year Sec. Growth Rt: 90% MktCap/CYRev -- 23.6x 12.8x
Key Points:
ú We believe that there is a large market opportunity for
BackWeb. The company
has developed a Foundation suite of tools for polite-push delivery
and has a
specialized Sales Accelerator application that is built on this
Foundation. We believe
that just as eMail has become a messaging platform and as
RealNetworks has created
an audio-visual platform, BackWeb has the potential to create a
polite-push platform
that brings information to users rather than relying on users to
find information.
ú Strong Results: In the recently announced Q2:99 results,
BackWeb beat our revenue
and EPS estimates. Revenues of $5.1 million exceeded our
estimate of $4.5 million
by $600,000 and were up significantly year over year from $2.0
million as well.
ú BackWeb has established itself as an early leader in
priority delivery of
information over networks. Users are receiving more email
than ever and there is a
real need to prioritize important information so that it is not lost in
the crowd.
BackWeb provides the mechanism for priority delivery and has
developed
applications tailored to increase the productivity of sales
departments as well as a
general platform for "pushing" information politely to users.
ú Compelling Valuation: We consider BWEB to be a franchise
Internet Infrastructure
company. At its current market cap / revenue of 23.6x for 1999
and 12.8x for 2000,
we rate the stock a Buy.
ú Increasing Client Ubiquity: The company estimates that
more than 5 million of its clients have
been distributed in the marketplace and recent deals with Hewlett
Packard and US West will help
the company to increase its product ubiquity.
ú Service Accelerator Suite: The company plans to introduce a
service accelerator package next
quarter which will enable companies to distribute important
materials such as technical manuals or
software patches to service representatives or directly to
customers. The company expects to
introduce new applications approximately once per year. The
company is also introducing iSurvey,
a module which will help companies use BackWeb for polling.
ú Highlights in Q2:99 included significant deals with US West
and Hewlett Packard leading to
increasing client ubiquity, announcement of a service accelerator
suite to ship next quarter,
alliances with SAP and Baan customer relationship management
offerings, the addition of Deloite
Consulting as a partner, and the receipt of an additional patent.
ú Important Partnerships: BackWeb is partnering with Deloitte
& Touche who will offer
consulting services to its clients to support and resell BackWeb
technology. BackWeb is also
partnering with SAP and Baan to enhance the functionalities of
these companies' product offerings.
REVENUE ANALYSIS FOR Q2:99:
ú Revenue Streams: Software licenses accounted for 83% of
revenue in Q2:99 (versus 81% in
Q1:99. Services was approximately 17% this quarter (vs. 19%
last quarter). The company expects
services to increase as a percent of sales in the future.
ú Application Sales: Sales of the sales application suite were
more than 10% of revenues this quarter
and are expected to increase next quarter as a percent of sales
since the product was introduced at
the beginning of the year, and the sales cycle is approximately six
months.
ú New Customer Mix: Usually, 20-30% of sales are to the
install base, this quarter a larger percent
of sales were to new customers than usual which was attributed to
an increase in the number of
sales representatives. Over the last several quarters, the company
has had approximately 20 to 30
new customers each quarter. New customers included Fidelity,
British Telecommunications,
Southwestern Bell, and Telecom Italia.
ú Average Deal Size: Excluding pilots, the average deal size
was between $300,000 and $400,000.
ú International: Sales were 81% in the United States and 19% in
the rest of the world, primarily
Europe.
ú Customer Concentration: One customer accounted for more
than $1 million in revenues in the
quarter. The customer was new to BackWeb this quarter.
OPERATING ANALYSIS FOR Q2:99:
ú Cash and short-term investments increased by $68.2 million
sequentially from $11.1 million to
$79.4 million this quarter, due primarily to the initial public
offering.
ú Days Sales Outstanding (DSOs) were down substantially
sequentially to 76 days at the end of
Q2:99 versus 128 days at the end of Q1:99. The company targets
90-100 days as a range in the
future.
ú Sales and marketing decreased as a percent of sales this
quarter from 93.5% last quarter to 85.8%
in Q2:99.
ú G&A decreased as a percent of sales this quarter from 22.7%
last quarter to 21.1% in Q2:99.
ú R&D increased as a percent of sales this quarter from 24.3%
last quarter to 27.7% in Q2:99, which
was consistent with our estimates.
ú Headcount was 192 total individuals, an increase of 34
individuals since last quarter.
Summary & Valuation: BackWeb provides business enabling
software to send priority information
over a computer network. We believe that this will be a very
promising technology, especially as the
amount of data transmitted over the Internet continues to increase
more quickly than the number of
users of the Internet increases. BackWeb is currently valued at
23.6x and 12.8x our 1999 and 2000
revenue estimates, respectively. We are enthusiastic about the
company and we rate the stock a Buy.
ACTION NOW: Buy.
THE COMPANY: Headquartered in Ramat Gan, Israel, and San
Jose and founded in 1995, BackWeb
has developed a platform for priority information delivery over
networks. Important messages can be
hidden in the flood of email and electronic files that a typical user
now receives. BackWeb offers a
solution to deliver important information so that it captures the
user's attention. In addition to this
general platform, BackWeb has developed several applications on
its platform to increase the
productivity of sales departments. These products are typically
sold to senior management in a
company because of their measurable abilities to improve
effectiveness.
INVESTMENT THESIS: We believe that as the amount of
information computer users receive
electronically continues to increase, there will be a greater need
for prioritization of business critical
information. BackWeb provides the technology to capture the
attention of recipients through its polite
push delivery system.
INVESTMENT RISKS: Among the investment risks are: (1)
new, rapidly changing market, (2)
competitors such as Marimba (MRBA $22.50) advancing
significantly on a technology standpoint, (3)
high customer concentration, (4) long and unpredictable sales
cycle, (5) dependance on key personnel,
and (6) political instability in Israel.
BancBoston Robertson Stephens maintains a market in the shares
of Baan Company N.V., BackWeb,
Marimba and RealNetworks; and has been a managing or
comanaging underwriter for or has privately
placed securities of BackWeb and RealNetworks within the past
three years. Unless otherwise noted,
prices as of close August 9, 1999.
FOR ADDITIONAL INFORMATION, CALL YOUR
BANCBOSTON ROBERTSON
STEPHENS REPRESENTATIVE AT (415) 781-9700. |
