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Analyst says Lightspan is considered to be a very good content company with a very good sales force
Brandon Dobell, Credit Suisse First Boston
BRANDON B. DOBELL is an Analyst that covers education services and publishing companies for Credit Suisse First Boston Corp
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TWST: Let’s look at some of the specific companies. I assume Lightspan has some attraction to the publishers for its content but is not necessarily having a field day in valuation or perception. Mr. Dobell: That’s exactly right. Lightspan (Nasdaq:LSPN) is considered to be a very good content company with a very good sales force, two things that really make a difference and are critical to building a successful business in K-12. So why is the stock not acting well? The stock is not acting well for two reasons. One, it came public at a time when almost anything was getting funded and people were tolerant of companies that were going to be losing money for a while. Lightspan was right there. The company has still not made any money on the net income line. It will eventually, but people are just not paying for stocks these days that are not showing a profit or a very short time to profitability. Lightspan is among those stocks. Valuation-wise, it’s very attractive with an enterprise value just a little above zero but with a market cap of less than $100 million. At the end of this quarter, they could have $80 million to $85 million in cash on the balance sheet, so you are getting Lightspan on an enterprise basis for virtually nothing. Right now it’s hard to argue that investors are wrong with this stock. The company changed its business model right after it came public. That’s not something investors want to see. It’s taken the company a long time to try to get to the point where it can start to regain the confidence of people who understand this space. My guess is that long term the stock will work either because they hit the numbers, shorten the time to profitability, or become an attractive target for a company that wants their sales force and their content, that wants to use their name to get into a different channel because it’s so well-known with educators. Their products work. The kids like them, the teachers like them, and they’re flexible — either CD-ROM or Internet-based. The company has been around for a long time. They have a very impressive set of investors. This is not a fly-by-night, flash-in-the-pan, here-today-gone-tomorrow company. This is a company with a lot of good content and what is now a good business model. It’s going to take the company hitting the numbers while getting out and telling the story in a consistent manner to make the stock start to work. In the end, they need to show investors that they can make enough money to show a profit, and so far that’s still too far away for investors to start buying the stock. TWST: They’ve got $90 million in cash. Their CEO, John Kernan, has referred to that money as a way to leverage new products, using what you’ve said is a very good sales and marketing network. Any short-term impact that those types of investments could have with Lightspan to improve investor recognition? Mr. Dobell: They’ve bought some small companies and layered them into the distribution network. One thing I do like is they bought Edutest, a company that provides Web-based testing and assessment products for K-12 students. Remember, testing and assessment were on my list of buzzwords that have been focused on this area by the presidential election. Edutest is a way for parents and teachers to constantly assess how their kids are doing in school and to therefore address issues in terms of how they learn and what they’re learning and where they are relative to their peers.
Tickers included in this excerpt: LSPN |
