Jim:
Raging Bull - NETP is the place for ongoing, informed discussion of this stock.
1. KD1 had revenues of $4 million which was 25% of NETP's at the time of the acquisition. In previous years, KD1 had grown revenues 100% per annum.
2. KD1 had 35 prestigious customers - JCPenney, Federated Stores and others, all yielding sizeable renewable revenues.
3. KD1 had sophisticated technology which enables detailed analysis of the data base of its customers.
4. KD1 had locations in Texas.
KD1 was in a pre-IPO state at the time of the acqusition. The price of the NETP shares were deemed to be $50 so the purchase price was deemed to be about $100 million. The acquisition was made at the beginning of February so two months of KD1 counted for NETP's 1Q. The integration of KD1 was also completed within the quarter.
NETP began selling its products to KD1 customers even before the acquisition was finalised and has continued to do so. But more important, NETP has begun selling KD1 products to its customers. In this way NETP is milking its own 191 customers a second time around. NETP is able to diversify its customer base away from the dot-coms (which now represent less than 25% of its revenues) expanding its product line, moving towards a complete package of marketing tools. For example, it has confirmed that it will start offering a rules-based recommendation engine to complement its own collaborative filtering system. In many of its customer wins, NETP gets the real time personalisation part of the package and competitors get other parts more suitable for rules based. Progressively, NETP is getting to "own" its customers. The KD1 technology is the main product on the new NETP ASP which is availale to the "mass" market. NETP has reserved its direct sales force to customers with a minimum installation order of $300,000 plus renewable support income. The CEO has said that the KD1 acquisition is playing a very large role in the growth of NETP revenues.
There are no negatives at NETP. One hiccup was in the sequential decline of consulting revenues. This is because it is having difficulty hiring enough people to keep up with growth. The hiring has been done and services should catch up in 2Q.
NETP has achieved 11 successive strong quarters - the last 4 have been at 50%+ sequentially. Given the speed of the ramping up - the company does not expect to be affected by the seasonality that effects e-commerce or industry in general. It expects consistent growth.
Analysts project profitability in 4Q 2001. Assuming only a portion of current trends and conditions, profitability should be in 1 half 2001 and conceivably 1Q.
Cash is $120 million, there is no debt. The burn rate in 1Q was a high $3.9 (partly because of the KD1 acquisition) but the burn rate will account for a maximum of $12 million more from the $120 before profitability.
The stock is covered by about 10 analysts, all of whom recommend BUY or STRONG BUY - with price range from $52-100 with $75 being the mean. Underwriters recently sold 2 million shares at $45.25 and 600,000 at $42. Four analysts have recently given strong public support for the stock. Following earnings - reiterations are expected. 96 institutions owned 44% at the last count. Given the high percentage owned by insiders and the lock up on insider sales until 90 days after the SPO (about 27th June) the float is small and subject to exaggerated movements.
NETP's crash may have been started by technical damage done to the share price when the SPO was announced, but the real damage was done by margin selling in the general market. The price dipped to $10 for a few hours and rebounded strongly to $27 before returning to $20 following stellar earnings. Given the extremely strong fundamentals and clarification that the company has no reliance on B2C pure dot-coms and has no customers who are in the B2B exchange category, but has announced recent wins with SBC in telecommunications, Sony in Japan, the two leading supermarket chains in the UK Tesco and Sainsburys, JCPenney (which claims that it saw gross margins improve $50 million as a result of the NETP installation) JPMorgan which is using its Knwoledge Management product, and MGM which is using NETP in wireless applications - NETP is starting to impress on the market that it is not a "net" company.
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