I would strongly recommend buying ITRA as a great medium and long-term
growth play.
On Oct. 15,2007 - ITRA reported its first ever profit in what is
normaly a seasonaly weak Q2 - see:
Intraware swings to Q2 profit -->http://www.bizjournals.com/
sanfrancisco/stories/2007/10/15/daily8.html
Intraware is now in its strongest position it has ever been in. No
debt, 11.3 Million in cash, rising gross margins which currently stand
at 67%, a pipeline of potential customers representing as many
opportunities as that which have existed in the past year-and-a-half
combined - thanks to partnerships with the likes of Akamai and Digital
River. The list of customers currently stands at around 50, Including
names such as IBM, Adobe, EMC, Ingram Micro, Unisys, McKesson,
Gracenote, Avaya, Hyperion (now part of Oracle), Navteq (recently
aquired by Nokia), Business Objects (SAP has just made a bid for)
When the company signs a contract with a customer it may take 2-3
quarters to hit the bottom line, but as the customer list has grown,
the deferred nature of these revenues has created a very stable and
predictable revenue stream. When those contracts expire, ITRA has
historically averaged north of 90% renewal rates, with many of those
customers going on to expand their use of ITRA's services throught
their business, creating another dimension of growth (organic) for
ITRA. A good portion of the customers ITRA has lost in the past have
been due to industry consolidation. One of the toughest customers to
be lost via aquisition was Peoplesoft, when Oracle aquired them. At
the time, Peoplesoft was one of Intrawares largest customers. It was a
tough pill to swallow, which created a strong headwind for Intrawares
efforts to grow their customer base. In reaction to this trend,
Intraware shifted its strategy and began targeting larger customers.
As time has marched on, it seems that takeovers are beginning to
create perhaps as much potential reward as they are risk to the
business. This is evidenced by Oracle (yes Oracle again) which
recently bought Hyperion. If history repeated itself indefinately,
Hyperion would not have renewed its contract when it was up for
expiration. Instead, they extended their contract well before it was
set to expire. The discussions for this extension were held with
executives from Oracle. I believe that Intraware, with its foot in the
door of the software giant, has a good chance of proving their value
to Oracle and expanding into other Oracle business segments in the
future.
When I look for a great investment, growth potential takes a back seat
to limiting my downside risk. In the case of Intraware, because their
revenue is so solid and predictable, and because the stock is so under-
followed, the downside risk is really quite limited, in my opinion.
There are only 6.3 Million shares outstanding, more than half of which
are held by institutions with long-term investment objectives.
Insiders - particularily the CEO, also own a good chunk. One of the
best ways to guage how much potential downside a stock has, is to look
at how it fares during a market downturn marked by fear. In mid-
August, when the market corrected 10% on subprime fear, many other
small-caps I had on my watch list fell drastically. I watched the bids
disappear and subsequently, the prices tumble on relatively low
volume. If you look at ITRA's chart during the Aug. period, you would
never know there was a correction. I am not suggesting that Intraware
is immune to a correction or dare I suggest - a reccesion. What I am
saying is that I think it will be much more resilient in that
environment than most other companies, particularily other small caps,
given the steady nature of its deferred and diverse revenues which are
a product of business as opposed to consumer spending. A good portion
of its customers are large cap technology companies, its
internationally derived revenues are growing. One last point on this
subject, laid out nicely by the blog entry below, is that SaaS
companies may very well fare much better in a recessionary environment
than non SaaS companies:
smoothspan.wordpress.com.
One subject I feel will continue to grow into the largest and most
pressing issue facing humanity, is our increasingly deteriorating
environment . I am excited to find correlation between the companies I
invest in, and efforts to address the many concerns we face regarding
this issue - not only fom a moral standpoint, but also from a
lucrative angle - as the issue grows in urgency.
earth2tech.com.
In the case of Intraware, as is laid out very clearly in the article
found at the link above which was written by Intraware's Vice
President of Sales, The digital distribution of all digital goods is
a natural and beneficial progression in the software industry that
will greatly help the environment in many ways. It still amazes me
that we would negatively impact our environment, not to mention waste
money and resources, creating a physical medium for something like
software that no longer needs a physical or tangible form in order to
get from point A(creation) to point B(hard drive).
Given the strength in the pipeline of ITRA's core business, and the
fact that they are now generating their own cash and on the cusp of
annual profitability, the company has recently been able to look to
fresh avenues of future growth. More information on the companies
first foray into social networking can be found below.
ca.us.biz.yahoo.com
intraware.wordpress.com
And If you would like to sign-up:
www.zathlete.com
Combined with the solid foundation that has taken 11 years to build,
and very conservative stock valuation, this exciting development has,
in my opinion, provided a key catalyst for very high growth in the
years ahead. |
