Info on SGNT: "A Compelling E-Commerce Opportunity "
By Scott Miracle
CNS Financial Analysis from StreetAdvisor.com
27 October, 1999
Company Profile
Sagent Technology is a leading worldwide solution provider of e-business analytic applications and services enabling Global
2000 enterprises to manager customer relationships, win, retain and grow new customers, and improve operational
effectiveness. The Sagent Solution is an integrated software suite that allows businesses to collect, analyze and act on
customer and operational data from existing systems and third-party data providers.
Customers
Sagent has over 300 market-leading customers across such diverse industries as financial services, healthcare and
telecommunications. Some of them are listed below:
ADP, AT&T, Bell Core, BellSouth Cellular, Barnes & Noble, Cyberian Outpost, Drugstore.com, BellSouth Entertainment,
CellStar, Ceridian, City of Santa Clara, Deutsche Financial Services, Eddie Bauer, Ernst & Young, General American
Transportation, Johnson & Johnson, Sony Online Entertainment, Hoechst Marion Russell, JP Morgan, Jiffy Lube, John Hopkins
Univ., Kaufman & Broad Home, Kawasaki Steel, MCI WorldCom, Miller Freeman, NationsBanc, NETCOM, Nordstrom, PairGain,
PSINet, Prudential Insurance, Rohm & Haas ... you get the idea.
Strategic Partners - Riding Siebel, Advent, ADP, Cap Gemini
The company has numerous strategic relationships including Commerce One, Siebel Systems, Usinternetworking, Microsoft
corporation, ADP, Advent, EDS, IBM, and Ralph Kimball Associates.
Sagent has successfully delivered analytic solutions for the past two years through strategic OEM partners such as Siebel,
Advent, ADP and PCN. Sagent also recently forged a partnership with Cap Gemini offering the first analytic application that
leverages a proven CRM methodology to deliver customer acquisition, retention and growth metrics for the telecommunications
industry.
Sagent works with Siebel to provide an analytic solution for CRM marketing automation called the Siebel Marketing
Enterprise.
ISID, a Japanese Application Service Provider, recently selected Sagent for providing complet web-based solutions to their
customers.
Awesome Third Quarter Results - Revenues up 117%, Profitability for the first time ever!
Revenues were $10.0 million, up from $4.6 million in the third quarter of 1998. License revenues increased 149% YOY and 47%
sequentially. Gross Margins were 84.8% versus 66.9% a year ago. Net income for the quarter was $659,000 or $0.03 per
diluted share, versus a loss of $(0.86) in the year ago quarter. Revenue growth has been greater than 100% each of the past
11 quarters. North America contributed 82% of total revenues, with Europe and Japan contributed the other 18%.
During the quarter the company acquired 45 new customers, including Drugstore.com, Boeing Employees Credit Union,
Thirteen/WNET, Johnson & Johnson, J.D. Power, SATO Travel, Telkom S.A., Brown Brothers Harriman, PSINet, and JAL Trading.
The company expanded its relationship with Siebel Systems and added new OEM partners including CommerceOne, Netacumen,
Value Science and Cross Access Corp. Expanded into Japan with a partnership with INTEC, co-founder of AutoByTel Japan.
Valuation
A forward PE of 60 for a company growing revenues 117% a year? We believe that Sagent can sustain its growth rate for at
least the next couple of quarters. Assigning a S&P 500 market PE/G multiple of 1.4x implies that the company can easily
trade at a forward PE multiple of about 150. Estimating forward twelve month earnings very conservatively at $0.18, we
arrive at a price target of $27.
Institutional Analysts are forecasting price targets in the range of $25 - 38. Upside Potential of 100% just gets you to
intrinsic fair value.
Potential Market Size
According to IDC, the market for analytic applications is expected to grow to $3.6 billion by 2002. According to a recent
H&Q report, Dynamic Hosting (of which web based analytic applications is a subset) and Software as a Service is an emerging
$6.6 billion market by 2003.
Investment Thesis
Turnkey vendor applications are winning over in-house technology and consultant designed solutions. We only need point you
to BroadVision or Vignette. Rather than integrate data warehouse components from multiple vendors, organizations can
purchase Sagent's powerful turnkey solution to let users harness data from a variety of data sources, and then conduct
sophisticated ad-hoc query and fast, broad scale reporting, over the web.
Sagent's products enable organizations to measure, analyze and optimize the effectiveness of sales, marketing, operations
and customer support initiatives. Sagent's web-based solutions allow businesses to consolidate disparate customer and
prospect data and analyze that data through a series of pre-built models and reports over the Web. These results can then
be used to improve various customer and operational processes, enhancing profitability, tracking and efficiency.
New Products
Sagent Solution 4.1 delivers the only open, scalable solution that addresses the full life cycle for web based analytic
applications. Organizations are finding it increasingly difficult to consolidate multiple information supply chain
technologies. Sagent 4.1 provides fast, web access to charts, reports, analyses; the ability to capture data from multiple
sources and present it in a single unified view; high availability for mission critical applications; and centralized
management capability for all aspects of the application.
The Bottom Line - Sagent Technology is Undervalued and the market is beginning to recognize this
Based on the quarterly performance and slew of customer and partner announcements, Sagent's business momentum is
accelerating. Sagent is one of the best positioned providers of enterprise business intelligence and e-business software.
The company appears to be separating itself from the competition. Version 4.0 is a true enterprise business platform, and
Sagent has demonstrated clear success in providing "solutions" to customers, not just packaged applications. This is
clearly demonstrated in its performance and new customer acquisition rates.
With its blue chip customer base, strong product functionality, and strategic relationships with leading CRM vendors such
as Siebel, the company looks positioned to continue its dominance.
Finally, this is a call based on valuation as well. A stock selling at a 50% discount to fair value, growing in excess of
100% a year, and profitable, with high gross margins, and stellar clients and partners, is hard for us to resist. There is
clearly a disparity in valuation between Sagent and other Internet stocks. Recent performance suggests that the market has
begun to notice. In my view, Sagent offers all the upside of a high flying internet stock while offering significantly
lower risk. Buy.
(Scott Miracle is an analyst at a major Wall Street investment bank. He may, from time to time, own or short stocks
mentioned in, or alluded to, in his articles
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