What I'm looking for now from NETA
is revenue growth in each BU that exceeds that of each of the major competitors. For example: PGP growing at a faster percentage than Checkpoint and ISS, and AV growing at a faster percentage than, say, Trend or Symantec. So far, it's very clear that this is not happening. More than any other factor, this is why the company is not highly valued.
I am also looking for an honest admission from Bill Larson that he and his team have made ultra-serious strategic errors, and an explanation of why they were made and how he's fixing them. Over the last 2 years, this has not been the case. In the conf call, Bill finally admitted that his management team had failed to execute during this period (almost his exact words). He also admitted that the products had fallen behind (his words were something like "in 2000 we'll recapture our technology lead"). But he did not take the time to "come clean" with the outside world and talk freely and frankly about what went wrong and how it will be fixed and prevented from recurring.
I suspect the only time he will really admit the depth of the failure is once he's pulled the company out from under it, and is once again delivering quarterly record revenues and at least 12% sequential per-quarter revenue growth.
I'm not selling at these levels - the company's "potential energy" is greater than its stock price today. But if the end of the year comes without the demonstration of decent revenue growth, this company would be better off being acquired. Who by? These days there are many with the market cap to do it, and a billion dollars per year of revenue has got to be tempting to some of them. The strategic fit includes CA, IBM, BMCS, possibly VRTS, SYMC, and more. Others may see the $1b revenue stream and figure out that with their own management, both the growth and profitability could be enhanced.
For inspiration, look to VRTS. With similar revenues, it is valued more than 10 times higher, and it is not even profitable. The job of fixing NETA is not over yet. Larson gives every impression of actively working on improving it, but the proof will be in the results. Another 2 quarters to wait at least to see what is forthcoming. With revenues of $233m and even only 9% growth, Q4/00 could come in at $278m - the first record revenue quarter since q4/98. A healthy NETA would deliver that with $0.50 per share, while keeping DSO's below 70 days. That equates to $75m in profits, or an incremental $34m in profit on an incremental $66m in sales excluding mcafee.com. Including mcafee.com and all charges (ie: totally "clean"), it equates to an incremental $64m in profit on an additional $54m of sales - tougher to do! More realistic is that the revenue numbers will come in, but the return to decent profitability will have to wait until next year. All this assumes that Bill can do it, and that either he sticks around to do it or is replaced by someone else who will.
How about some thoughts from someone else?
-a weary Elephant |
