What makes sense for NETA?
Like you, I'm just trying to figure out what makes sense for the company. I liked the idea of selling complete suites to the high level buyers in corporate America, but since this management team was unable to pull it off, I'm happy enough to hang in while they revert to their original point-product sales model. On another board, somebody said words to the effect of "mgmt screwed up the previous sales model, and history might repeat itself". Well, they certainly did screw up the integrated sales model, but look at what Larson, Watkins, and the gang managed to do for the 23 or so previous quarters. The execution was phenomenal. The results were phenomenal. If their strategy now is to build a series of point-product businesses that work "just like McAfee used to", then I for one am very certain that they can do it. They've done it before, they can do it again. Competing in the trenches is what Bill and gang do well. Making the products good enough to win, and pricing them so that LAN managers simply can't justify buying any other products. Couple that with the subscription pricing model where the cost of entry for LAN managers is 60% of what it would be from a competitor but the company has to renew after 2 years, and you have a reliable, predictable revenue stream. Only when they screwed with this model did the sales go down the drain. The worst thing this mgmt team did is blow its own credibility by predicting a good Q1/99 in mid-Feb/99 when in fact a good Q1/99 must have been felt by them to be almost certainly unatainable. The second worst thing they did was to cause Q1/99 to *be* unatainable by screwing up the sales model. But that was not something you or I or they predicted in advance.
Don't forget that the company's products are still very popular, and that management and sales will be even more focused now than before. Also, Watkins will ensure that all the products work together, so that an integrated suite is available to those who wish it.
I am very optimistic about their ability to deliver at least $1.135m in revenues this year. I have not completed my analysis of how much they must spend to get there yet, but I believe this stock is underpriced based on the prospects of its products, management, and strategy. Also, with 1 or 2 more spin-outs this year (which is at least possible if not likely), the spun-out companies will have market caps of about double the current NETA. Apart from anything else that NETA does, this will float the stock upwards.
Once the stock is high again, expect Bill to begin more acquisitions, but this time of relatively small companies that he can install an "overseer" management team into, to help them scale up. The target companies will have products that can benefit from exposure to NETA's customer base. Expect him to set up a Japanese-style (or CMGI-style) family of companies with Internet-enabled product lines that are all complementary. Just ask yourself why he would not do that if you were in his position. It makes perfect sense for the company to do this, and provides Bill with a new way to grow NETA's value (and his own).
Anyway, I have gone further than you probably wanted, but I would be interested in others' analysis.
-E
Elephant, you are obviously tapped into NETA; have you heard anything more specific about the plans for spinoffs; I am especially interested in timeframes |
