B) Why is KEYN a sour note with investors?
Rated a BUY
Reason for DD
Strong quarter
Business
Keynote Systems, Inc. is the leading provider of Internet performance measurement, diagnostic and consulting services to companies that operate e-commerce web sites. The Company markets Keynote Perspective, Consumer Perspective and Keynote Lifeline, global real-time services that measure, assure and improve the quality of service of e-commerce web sites around the world. The Company captures over 24 million performance measurements daily using Keynote's global infrastructure of nearly 500 measurement computers connected to the major Internet backbones in over 120 statistically selected locations across 50 metropolitan areas worldwide. Internet performance and availability data are collected at Keynote's operations center and are instantly available to customers through any web browser. Keynote customers include over 1,000 leading e-commerce web sites and hosting companies.
Competitors
Service Metrics, Jyra, Evity, and Mercury Interactive
News
BW 07/19 15:42 Keynote's Transaction Service Exceeds 1000 Subscriptions; Underscores Leadership in Outsourced Web Application P
Keynote Announces Record Third Quarter Financial Results; Achieves First Profitable Quarter After Only Three Quarters as a Public Company
Business Wire - July 13, 2000 19:40
SAN MATEO, Calif.--(BUSINESS WIRE)--July 13, 2000--Keynote Systems (Nasdaq:KEYN), The Internet Performance Authority(R), today announced financial results for the quarter ended June 30, 2000.
Revenues for the third quarter of fiscal 2000 were $9.7 million, which represented an increase of 406% over the corresponding quarter in fiscal 1999 and a 35% increase over the previous quarter. Pro forma basic net income for the quarter was $2.9 million, or $0.11 per share, compared to a net loss of $1.7 million, or $0.34 per share, for the corresponding quarter a year ago and a net loss of $356,000, or $0.02 per share, for the preceding quarter.
Reported net income for the quarter was $1.7 million, or $0.06 per share, compared to a net loss of $1.8 million, or $0.36 per share, for the corresponding quarter a year ago and a net loss of $441,000, or $0.02 per share, for the preceding quarter.
"This quarter we reached a milestone in the history of Keynote - profitability. Additionally, we added a record number of new customers in the quarter, and still maintained a 99% monthly customer retention rate," said Umang Gupta, Chairman and CEO of Keynote. "During the quarter we successfully completed the acquisition of Velogic, adding E-commerce load testing to our service offerings while we continued to announce new services and features such as Streaming Perspective(TM) and Diagnostic Perspective(TM). We also strengthened our already impressive list of partners, adding IBM and Jupiter Communications and enhanced our existing relationships with Hewlett-Packard and Digital Island."
During the quarter Keynote continued to invest in the expansion of its global infrastructure to include 550 measurement computers, connected to major Internet backbones from over 120 statistically selected locations across 50 metropolitan areas worldwide. As of June 30, 2000, the company measured over 12,000 Web-site addresses (URLs), and captured over 24 million measurements per day.
Keynote added 350 new customers, during the quarter. New customers included companies such as American Greetings.com (NYSE:AM), Chase Manhattan Bank (NYSE:CMB), General Electric Power (NYSE:GE), Go2Net (Nasdaq:GNET), Network Appliance (Nasdaq:NTAP), Network Associates (Nasdaq:NETA), Pitney Bowes (NYSE:PBI), the United States Postal Service, and Wal-Mart Stores (NYSE:WMT). As of June 30, 2000, Keynote had a total of 1,353 customers, and over 3,000 subscribers. Subscribers include all Keynote customers in addition to those whom Keynote serves indirectly through Web-hosting companies and now include 80% of the current Media Metrix Top 50 Web Sites and 52% of the Media Metrix Top 500 Web Sites in the U.S.
Highlights for the quarter:
-- Keynote was named the fastest growing publicly held company in the
Bay Area by the San Francisco Business Times.
-- Keynote was added to the Russell 2000 Index in July 2000.
-- On July 11, 2000, Keynote obtained a 188,000 square foot building
located in San Mateo, CA. in a synthetic lease financing
transaction with Industrial Bank of Japan.
-- Digital Island (Nasdaq:ISLD) announced the first content delivery
performance Service Level Agreement supported by Keynote
measurements.
-- Keynote announced an expansion of its alliance with
Hewlett-Packard Company (NYSE:HWP) to allow HP OpenView Express
customers the ability to view Keynote Perspective(TM) measurement
data in a single integrated environment.
-- IBM (NYSE:IBM) will offer Keynote's Web-site performance
measurement services to its web-hosting and e-business customers.
-- Keynote acquired Velogic, Inc., and will now offer e-commerce load
testing and site assurance services in addition to Internet
performance measurements.
-- Keynote announced the Streaming Perspective(TM) service, which
will allow the streaming industry the ability to measure the
performance and define the quality of streaming audio and video on
the Internet.
-- Keynote launched its Streaming Partner Program, which includes
industry leaders, such as Adero, Akamai (Nasdaq:AKAM), Digital
Island (Nasdaq:ISLD), Enron (NYSE:ENE), iBeam (Nasdaq:IBEM), Intel
(Nasdaq:INTC), Microsoft (Nasdaq:MSFT), The MTVi Group and Real
Networks (Nasdaq:RNWK).
-- Keynote announced the Keynote Service Center, an online service
portal that enables strategic partners to make all their Keynote
Perspective(TM) changes directly, quickly and easily on a
self-service basis.
-- Keynote announced that it would provide proprietary Web site
performance measurements to select clients of Jupiter
Communications (Nasdaq:JPTR) and attendees of Jupiter's
conferences.
-- Keynote launched a new brand awareness campaign and redesigned Web
site.
-- Keynote announced the new Keynote Diagnostic Perspective(TM)
service that will deliver the first comprehensive Internet
Diagnostics for network engineers and Web managers to quickly
diagnose and improve peering, server and content problems that
affect performance.
-- Keynote unveiled the Internet Pulse, a new service, that for the
first time measures the performance of the peering connections
between the major Internet backbones across the United States and
is made available free of charge at internetpulse.keynote.com.
Forward-Looking Statements
Analysts and Other
21-Aug-00 13:00 -- 14:00 ET
Keynote Systems (KEYN) 36 13/16 +1/8: Roberston Stephens reiterates BUY rating after company announced Friday that it will acquire Red Alert for $15 mln in cash; analyst believes that the acquisition is solid and prudent because it provides the company the ability to cross sell and up-sell to its own and Red Alert's customer base; additionally raises the competitive bar for potential new market entrants.
14-Jul-00 12:00 -- 13:00 ET
Keynote Systems (KEYN) 63 9/16 -19 5/8: Wit SoundView reiterates STRONG BUY rating with a price target of $156 following earnings report; raises FY00 estimate to $0.03 from a loss of $0.17 and FY01 to $0.39 from $0.18.
19-Apr-00 AFTER THE CLOSE
Keynote Systems (KEYN) 45 +9 3/8: Reports Q2 loss of $0.02 a share, $0.12 narrower the First Call consensus of ($0.14), vs year-ago loss of $0.24; revenues rose 451.7% to $7.178 mln from a year-ago of $1.301 mln; see press release .
22-Feb-00 11:00 -- 12:00 ET
Keynote Systems Inc. (KEYN) 139 +20 1/4: --Update-- Wit SoundView initiates coverage with a STRONG BUY rating and a price target of $250.
Numbers
Rev 1.9M to 3.2M to 4.8M to 7.2M to 9.7M Jun00
EPS (0.19) to (0.09) to (0.02) to 0.11a Jun00
52-Week Low on 24-Sep-1999 $17.25
Recent Price $29.875
52-Week High on 1-Mar-2000 $177.00
Market Capitalization $826.9M
Shares Outstanding 27.7M
Float 12.5M
Price/Book (mrq) 2.08
Price/Earnings N/A
Price/Sales (ttm) 24.66
Debt/Equity (mrq) 0.01
Total Cash (mrq) $356.4M
Short Interest As of 8-Aug-2000
Shares Short 237.0K
Percent of Float 1.9%
Shares Short (Prior Month) 406.0K
Insiders
Over 50 insider sells, buys at $8 option price
49% by institutions, increased each quarter
Internet Posts of Note
Don't understand KEYN. Didn't that analyst say $200? 9/1/00 on SI
keynote is also hosting a global internet performance conference sept. 6-8 in sf. should drum up some press and support. 9/1/00 on yahoo
The problem with KEYN is that they aren't a big name player like FFIV, CFLO and others in Internet management. If they do $60 million in sales next year as predicted, that's 15x sales at the current price. You have to get to 25-30x sales to see $50 again. Just depends on sentiment for Net stocks and the overall tech market. But I wouldn't buy that chart right now. Hope I am wrong for the sake of KEYN longs. 8/30/00 on SI
Yeah, I know, this was my third post about KEYN recently, once at about 50, once at about 40, and now.
So I was early before. THIS HAS GOT TO BE THE BOTTOM THIS TIME DAMN IT! 8/29/00 on SI
Keynote Systems Tumbles After Company Reports 3rd-Qtr Results
7/14/00 11:52:00 AM
Source: Bloomberg News
San Mateo, California, July 14 (Bloomberg) -- Keynote Systems Inc. shares tumbled as much as 26 percent on concern revenue growth is slowing, an analyst said.
Shares in the company that gauges the performance of Web sites fell 19 3/16 to 64 in midafternoon trading. Earlier they traded as low as 61 1/2. 7/14/00 on yahoo
Mercury is basically a software company selling load testing software to companies who want to test their ecommerce sites prior to deployment. They recently launched a service based on their software that will measure sites from a very limited geography. That service competes with Keynote , but Keynote's service is far more comprehensive. Mercury just uses their service to sell more of their software. That's not to say Keynote should ignore Mercury as a competitor as Mercury is a large company with a lot of resources and the two do compete at some level. As far as I know, Akamai is still a large customer of Keynote. My guess is Mercury signed some sort of marketing agreement with Akamai for some of their software/services then blew it up with a bunch of hype in a press release. 6/8/00 on yahoo
Speed matters. It matters so much that Microsoft Corp. pays more than $100,000 a month for Keynote Systems Inc. to check the performance of the software giant's Web sites against rivals. A Web infrastructure company based in San Mateo, Calif., Keynote Systems has 500 Windows NT servers dispersed around the country, acting as stopwatches to determine how fast home pages download. "We're like a blood test for your Web site. We're constantly measuring its health all over the world," says Umang Gupta, Keynote chairman and CEO. To give prospective customers an idea of what Keynote does, the company monitors 40 large consumer Web sites and publishes a list of the five fastest-loading pages. Keynote software agents take measurements hourly between 5 a.m. and 9 p.m. Pacific Time in eight major metropolitan areas. Last week, Ameritrade.com took top honors with 3.4 seconds. Yahoo.com came in second at 4.18 seconds, Lycos at 4.94, Go.com at 5.56 and Excite.com at 6.83 seconds. Average download time was 14.67 seconds. The worst was an unnamed travel site with a glacial download speed of 40.09 seconds. Keynote also publishes an index of the top 40 business sites and plans to launch this week the Internet Health Report, which looks at the performance of the major Web-backbone providers every 15 minutes. The field is largely uncrowded. Keynote's main rivals include Service Metrics Inc., which was bought in October by application-service provider Exodus Communications Inc., and Mercury Interactive Corp., which monitors links and applications in addition to clocking speed. A newer entry, Evity Inc., was founded in late 1998. "Keynote is undoubtedly in the lead. They have one of those ideas that is drop-dead simple yet hard to do," says Charles Rutstein, a senior analyst at Forrester Research Inc. in Cambridge, Mass. And there seems to be room for growth in the sector. Microsoft and Akamai Technologies Inc. are currently the only companies spending more than $100,000 a month, according to Mr. Gupta. A Microsoft official would not disclose the exact amount, but conceded they spend "a lot" with Keynote. Keynote says that 80% of Media Metrix Inc.'s top 50 companies are customers. But few Web sites can afford to spend even several thousand dollars a month on a service such as Keynote's. The vast majority sign up for more basic services, which start at $295 a month to monitor a Web page in 10 U.S. cities. Prices climb based on the sophistication of service and number of Web addresses and metropolitan areas monitored. Another big customer is International Business Machines Corp., which this week will announce that in addition to using Keynote services, it will resell the services as part of a co-branding arrangement. "They have a strong brand, and we want to leverage it," says Warren Hart, director of global offerings for Web hosting at IBM Global Services. What appeals to IBM is Keynote's ability to measure Web sites from the vantage point of a user, not at the server. IBM is known for hosting popular event Web sites with huge amounts of traffic. For instance, Wimbleton.org in 1998 peaked at 130,000 hits a minute. In 1999, the figure jumped to 432,000 hits. And Masters.org this year hit a whopping 591,000 hits a minute during the tournament dates of April 3 to 9. If Keynote can be faulted, it's for emphasizing speed at the exclusion of other considerations, such as quality control. "They are doing the world a disservice, because Keynote has done such a good job giving CEOs and COOs the ability to track their responsiveness. There's an inordinate amount of value placed on Keynote data. Other things like design and product selection are being ignored," says Joel Yaffe, an analyst at Giga Information Group in Cambridge, Mass. As far as weaknesses go, Forrester's Mr. Rutstein believes the company must move beyond simply reporting problems and step into the network-repair business. "It's very easy to understand their data. It's another thing to say here's why there's a problem and here's how you fix it. That's where they need to do a substantial amount of work," says Mr. Rutstein. Gary Spivac, an analyst with investment bank Wit SoundView, rates Keynote a "strong buy" and believes it will make the necessary transitions to offering solutions to problems it identifies. At 4 p.m. Monday, Keystone shares closed down $4.125, or 7%, at $52.375 on the Nasdaq Stock Market. Its 52-week high of $177 is a distant memory. The company's revenue for its fiscal second quarter ending March 31 increased 50% to $7.2 million from the previous quarter, while its loss narrowed to $441,000, or two cents a share, from nine cents a share the previous quarter. Mr. Gupta is sticking to his forecast that Keynote won't be profitable until the second quarter next year. "If we're profitable quicker, great." Mr. Gupta says Keynote is in fine shape with $350 million in cash on hand. He acknowledges the difficulty he will face in adding about 100 more employees to its current 200. But he says it's better to be hunting for new employees than for customers. "Our future is in our hands," Mr. Gupta says. "Only we can screw it up." 5/9/00 on yahoo
As a result of the IPO in September and the recent secondary offering, KEYN now has about $350 million in cash in the bank. So even if they continued incurring $2 million a quarter in losses (which they won't) as reported in their last quarter's earnings report, that's enough cash to last 43 years! And even if they invest the cash in 5% yield bonds, that's at least $17 million a year in interest they will earn. $350 million in cash also translates to $13.50 in cash per share outstanding. If you keep doing this kind of simple arithmetic and also factor in the sales and earnings growth projected by the analysts that KEYN keeps beating, we can conclude that at today's $40 price we are only paying $26.50 for the growth and future operating earnings, and the stock is an absolute steal at this price. 4/20/00 on yahoo
Due to heavy institutional demand the size of secondary was increased from 5,462,500 to 6,325,000 shares.
Yesterday after the close @ 16:27:00. 2/18/00 on yahoo
People, you have to remember that it's Keynote's worldwide agent infrastructure from which they measure Internet performance that must be maintained, enhanced and expanded to maintain market dominance (yes, DOMINANCE). This takes capital, lots of capital so you should expect a loss. One more thing, anyone who thinks that Keynote will always be a simple little company that only measures web site performance needs to think outside the box for few minutes. That's like saying a 20 years ago that Microsoft is just this little company that makes something called DOS (not to infer Keynote will be another MSFT but you get the point). There's something in the making here. Ask yourself "hmmm...what would I do if I had hundreds of computers strategically located all over the globe...?". To my knowledge only two companies can make that claim - Keynote and Akamai. 2/15/00 on yahoo
Overall, we got the impression of a company that has carved out a niche for itself in an interesting part of the online business, that's growing rapidly and that's financially in good shape. But we also came away with the impression that the stock is absurdly overvalued. This latter impression was in no way diminished by the fact that the bulk of the stock to be sold is from insiders, 3.75 million shares in all. Nor that a sizable hunk of insider holdings were purchased via exercise of options (often within the past two years) at prices as low as a nickel or eight cents a share. To be fair, some officers have options on stock granted not quite a year ago that are as high as $8 or $9 a share. Keynote is definitely involved in the Internet: It's a Website monitoring concern that measures e-commerce performance -- stuff like how long it takes to download pages -- and supplies diagnostic services. What it doesn't do, contrary to the widespread belief in the Street (as evidenced by the spurt in the shares last week from 89 to 125) is provide protection against cybervandals. We found somewhat disturbing, too, empathizing as we're paid to do with shareholders, existing and prospective, that a massive number of shares are slated to leave the restricted zone and soon can be sold, if their holders so desire. All told, this ample reservoir of potential supply aggregates over 14 million shares, each and every one of which will be eligible for sale three months hence (another seven million shares will be sprung from lockup a year out). So far, Keynote seems more than able to mix it up with its competitors. But mounting competitive pressure, from the likes of Service Metrics and Mercury, could affect measurement prices, and not for the better. The stock is selling at something like 98 times sales and (forgive us for even mentioning it, but old habits die hard) over 40 times book value. 2/12/00 on yahoo
Keynote is a ratings engine, a sort of JD Powers of the .coms as they claimed in a press release. Most companies are coming to Keynote not because they can solve problems for them but because their competitors are being rated by Keynote and therefore gaining more visibility. So they sign up for a page or two of measurement to figure in their published ratings driving down the revenue average from that of its few prized customers like Schwab. Many of Keynote's customers have themselves pointed out the technical problems that I listed in an earlier message. On the financial side, look at these business metrics:
1. An average customer today generates $7K/quarter.
2. Keynote has acquired 700 customers to date generating a Q4 revenue of $4.8M.
3. With 1000 additional public dotcom customers this year (conscious of performance metrics from many cities and likely to have a global presence) that's an additional $7M per quarter. (very optimistic assumption.)
4. All told, the revenues for Q4 of 2000 should be of the order of $12 M max (if measurement prices hold up). By then the number of employees scale to 250 or so. Still a far cry from profitability given all the capital investment on top and the marketing expense.
I am not only an industry "insider" but I happen to know some folks at Keynote and some at a large company that resells its services. The ra-ra element and the mutual pat on the back visible on this message board admixed with the absurd market valuations all around and low trading volumes can have unpredictable results on this stock's price in the short term. But if you are a careful and dispassionate investor you should see the logic in bailing now. Keynote's current model is not a profitable one for an uncomfortably long time.
Constructive critique is welcome. Vacuities like "I dunno, many good companies are buying Keynote services so it must be a worthy investment" are not. 2/9/00 on yahoo
Chart
Long channel downward. $30 may be the double bottom. Big red drop July 14.
Links
keynote.com
Summary
Stock is one volatile mofo. Looks like double bottom formed. Would have like to heard conference call. I like the 99% retention rate and customer lists. Is it over-valued? Not compared to the past valuations. Maybe $5 downside, and double on the upside. I have to believe the analysts were conservative in the summer and will be in the fall. I’ll buy in on Tuesday.
Jack |
