Omniture, Inc. Buy
OMTR -$27.20 Price Target: $40.00
A Giant In The Making; Do Not Bet Against The Customer Targeting Leader
THINK ACTION:
We are expecting several positives on the upcoming earnings call (scheduled for February 7), which could be good news for OMTR shares. We would expect management to be upbeat on activity levels and trends, which could mitigate some investor concerns with the impact of the economy.
Importantly, we believe that Street estimates for FY08 are headed up to account for recent acquisitions, which we believe strengthen competitive positioning and broaden the target market opportunity. We recommend that investors buy shares ahead of increased recognition of the health of trends and upward revisions in 2008.
KEY POINTS:
• Omniture is scheduled to report Q4 results on Thursday, February 7, after market close. We expect the call to go well, highlighted by upbeat management tone, FY08 guidance ahead of Street consensus, and suggestion of improved competitiveness and profitability bolstered by the Visual Sciences acquisition.
• Most 2008 Street estimates do not yet layer in Visual Sciences (which closed mid January and likely two months ahead of anticipated) or Offermatica (which closed at the end of December) contribution, which we believe suggests that Street targets are headed up notably post the Q4 call. We are encouraged by the accelerated Visual Sciences close, given it helps reduce customer and employee distraction and positions the company to more-quickly realize the benefits of increased scale/product breadth.
• Our 2008 revenue target of $291 million is well ahead of Street consensus of $225 million, but still could be conservative given ramping market interest in A/B testing offering and large customer interest in Visual Sciences' next-generation offering. Our EPS target of $0.40 is $0.02 below the Street target of $0.42, but could be easily cautious by $0.05 due our overly conservative assumptions on cost synergies.
• We have had a chance to talk with a number of Omniture partners, competitors, and others over the past few weeks and feedback has been positive on the health of secular trends and competitive positioning. Although investors have been somewhat nervous that Omniture could get squeezed by constrained marketing budgets, partners have noted optimism on 2008 and the increasing need for optimization tools to help deliver ROI on online marketing dollars.
• OMTR shares are trading at a 4.6x EV/Revenue multiple on our FY09 estimate, which we believe understates the emerging target market opportunity and leading competitive positioning and is somewhat compressed given overstated concerns with the health of online marketing spend. Our $40 price target is predicated on 7x our FY09 revenue estimate. We believe 7x is reasonable, given healthy secular trends, strong competitive positioning, and numerous potential upside scenarios. |
