S&P On LionBridge
Lionbridge IPO a Chance to Play Global Growth of Technology
By Stephen Tekirian, S&P Small Cap/IPO Analyst
NEW YORK, Aug. 18 (Standard & Poor's) - We have a long term buy recommendation on the initial offering of Lionbridge Technologies (LIOX).
Because this company generates only a portion of its revenues from the Internet, and it does not exhibit the dramatic top-line gains characteristic of most Web firms, we do not expect exceptional gains in the stock price initially. The shares do, however, represent an attractive long term investment, as we see Lionbridge generating 25%-30% sales growth over the next few years, driven by the increasing importance of global markets, widespread adoption of information technology and the growing trend among many companies to outsource non-core functions. Many technology firms are now simultaneously introducing new products in American English and other languages. As a result, they require globalization services, such as translation and testing, to be available immediately to overseas users.
Lionbridge Technologies provides the software, hardware and telecommunications industries with services that facilitate the release and support of products in foreign markets. The company's services include translation, re-engineering of user-interfaces, online help, documentation, training materials, marketing information, local compliance assurance, and multi-lingual product testing. In addition, LIOX provides methodologies that enable a company to undertake Web-based product releases and support. Some of Lionbridge's more notable customers include IBM, Microsoft and Sun Microsystems. In 1998, IBM accounted for 14% of revenues, while LIOX's five largest customers generated 39% of sales.
A primary benefit that Lionbridge provides its clients is the ability to outsource a non-core global marketing and product support functions that are becoming increasingly complex and costly for corporations to implement internally. LIOX provides cost-effective globalization services, allowing corporations to accelerate time-to-market, reduce fixed costs, and focus on core competencies, such as R&D and marketing initiatives. In addition, Lionbridge offers its clients a "one-stop-shop" for globalization services through its services portfolio that goes well beyond basic translation services.
LIOX's strategy is to leverage its existing client base by offering services to a variety of product groups within a particular organization. In addition, the company plans to continue its aggressive acquisition activity in order to gain niche market expertise, acquire new, complementary service capabilities, increase geographic reach, and grow its customer base. Finally, Lionbridge hopes to expand the number of industries it serves, with particular focus on information-intensive fields, such as the automotive and medical industries.
The company plans to use the offering proceeds to redeem its series B redeemable preferred stock, repay its subordinated debt and fund general corporate expenditures.
In recent years, it has become increasingly critical for both small and large corporations to expand beyond the U.S. into lucrative, high growth international markets. Technology companies are among the most aggressive participants in foreign markets. For example, according to International Data Corporation, 54% of worldwide software sales in 1997 were generated outside the U.S. In addition, the emergence of the Internet as a tool for businesses and consumers has done much to overcome geographic distances. The Web, which has already become part of the American mainstream, is expected to penetrate the lives of a growing number of foreign users. Computer Economics predicts that by 2002, over 50% of Internet users will be non-English speaking.
Nonetheless, investors looking for a pure Internet play should not look to Lionbridge's offering. But those with longer time horizons should find the shares attractive, as the company should benefit from increasing economic globalization. While numerous foreign countries have suffered from severe economic problems over the last two years, over the long term, emerging economies are likely to produce the world's most impressive growth. |
