Omniture's (stock aymbol [t]OMTR[/t]) profile from Yahoo:
Omniture, Inc. provides online business optimization software enabling customers to manage and enhance online, offline, and multichannel business initiatives. The company hosts and delivers its Omniture online business optimization platform to its customers as an on-demand subscription service. This platform consists of Omniture SiteCatalyst, Omniture DataWarehouse, Omniture Discover OnDemand, Omniture Genesis, Omniture SearchCenter, Omniture Test&Target, Omniture SiteSearch, and Omniture Publish services, as well as Omniture Discover OnPremise software. These services enable customers to capture, store, and analyze information generated by their Web sites and other sources, as well as to gain business insights into the performance and efficiency of marketing and sales initiatives and other business processes. Omniture also provides enterprise, on-demand, and automated onsite behavioral targeting and optimization solutions, as well as real-time Web analytics applications. In addition, the company offers a range of professional services that complement its online services, including implementation, best practices, consulting, customer support, and user training through Omniture University. It serves various industries, including automotive, financial services, media, retail, technology, and travel. The company sells its services through direct and indirect sales channels primarily in North America, EMEA, Japan, and the rest of the Asia-Pacific region. Omniture, formerly known as SuperStats.com, Inc., was founded in 1996 and changed its name to MyComputer.com, Inc. in 1999. Further, it changed its name to Omniture, Inc. in 2002. The company is headquartered in Orem, Utah.
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Application Software
Omniture, Inc. OMTR – $21.04
Buy Price Target: $30.00
OMTR: Do Not Be Afraid To Invest In The Fastest-Growing SaaS Company
THINK ACTION:
Discussions with a couple important Visual Sciences (HBX) customers and others highlight Omniture's leading competitive positioning, impressive product breadth, and expansive partner ecosystem, in our opinion. We treat recent negative market chatter over the health of trends (which has impacted OMTR shares 20% over the past month) as just unsubstantiated noise and, in fact, we believe that company trends and opportunities are healthy to strengthening. We expect that a seasonally stronger Q2 and suggestions of steady progress with the Visual Sciences integration could clear some investor skepticism and could represent a catalyst for shares.
Key Points:
We remind investors that Omniture is the fastest-growing, publicly-traded software as a service (SaaS) name with over 50% organic growth and growing faster than other publicly-traded SaaS peers such as salesforce.com, NetSuite, RightNow, Taleo, etc. EBITDA is growing at a faster rate than revenues given the commitment to showcasing leverage in the model. We believe the company is well run, with a deep management bench, and Omniture has expanded gross margins 650 basis points and operating margins 850 basis points over the past five quarters, while delivering a record CFO performance in Q1 on the heels of a record/blowout bookings performance in Q4. EBITDA growth is growing faster than revenue growth (operating margins could expand 400 basis points in 2008), driven by management's commitment to showcasing improving leverage in the model, in our opinion.
Given top-in-class customer referenceability (customers include AOL, Microsoft, eBay, Disney, HP, etc.) and scale advantages versus privately-traded competitive peers, we see competitive leadership that is defensible and sustainable as the online marketing/ecommerce market continues to rise in sophistication. We believe that scale advantages could help drive higher-quality training, service, and support programs; fund a more-accelerated rate of product and platform innovation; establish the broadest partner ecosystem; and enable deeper and broader sales and marketing coverage vis-à-vis peers, all of which are key levers for market share gains (while margins continue to expand). Investors have consistently been somewhat nervous over "free" Google analytics and its midmarket proposition, but we are not terribly concerned given its weak service/support model, which could relegate the free offering to the lowest-end segment (or to a "second opinion" type tool for larger customers). While privately-held Coremetrics has just raised $60 million and appears positioned to compete more aggressively, we do not expect a stronger Coremetrics to slow down Omniture notably in the near to intermediate term.
The company is early in going after a broadening "closed loop customer targeting" market opportunity, which could be 4-5x larger than core Web analytics and is just getting going, in our opinion. More recent product offerings such as Bid Management (SearchCenter), Testing/Targeting (Offermatica, TouchClarity), and AdHoc Analytics (Discover Online, Discover On Premise) could be relevant for the majority of the customer base (across segments and verticals), and we estimate less than 5% penetration currently, which suggests the magnitude of the higher-margin cross-selling opportunity ahead.
Large Visual Sciences (HBX) customers are planning migrations to Omniture, which could address some skeptic concerns, in our opinion, and we have seen pricing tick up due to cross-selling. While migration activity is just getting going and appears to be steadily picking up, some large customers have noted that internal IT constraints have slowed down timelines. Importantly, even in the cases where customers have extended timelines, Omniture still retains the revenue and appears committed to accommodate customer schedules. We are encouraged that customers surveyed are not looking at competitive alternatives and appear to be interested in adding additional products during the migration, which could take up annual pricing by 15-50%. A couple customers surveyed are adding Discover and expect annual pricing to tick up by 50%.
We believe that management was conservative in assumptions around the Visual Sciences acquisition, which we believe suggests that strong retention of the HBX customer base and some early migration activity with a lift in annual pricing could drive upside to the model. We believe that teams are now integrated and migration processes are getting better defined, which suggests that the bulk of the heavy lifting is behind the company. Our model assumed a 15% deterioration to HBX recurring revenue in 2008, which suggests our numbers could be headed up with further evidence of strong retention and as migration activity picks up through the year.
Our sense is that the company could benefit from some more favorable seasonality in Q2, especially on the heels of a very successful and widely-attended user conference in Q1 (in early March with attendance up roughly 50% Y/Y) and improving sales productivity. At the user conference, Omniture customers, Visual customers, and prospects were energetic, appeared to network without inhibition, and seemed fully committed to absorbing as much "how to" content during a week of sessions as possible. We believe that this user conference could help drive cross-selling activity and accelerate sales cycles, which could benefit Q2 performance.
OMTR shares are down 20% over the past month, largely due to unsubstantiated concerns with competition and weakening mid-market activity, in our opinion. Our sense is that trends are healthy to improving, and we expect a strong Q2 report to mitigate concerns. OMTR shares trade at 3.5x our 2009 revenue estimate, which we believe understates growth, competitive position, and the magnitude of the opportunity ahead. Our $30 price target is predicated on 5x our 2009 revenue estimate.
VALUATION:
Our price target of $30 is based on 5x EV/2009E revenue.
RISKS TO PRICE TARGET:
1) Increasing competition;
2) Regulatory restrictions limiting the tracking of Web users or levying taxes on tracking activities;
3) Loss rates of customers, which impact the recurring revenue base;
4) User decisions to block or delete cookies, which undermines the quality of the data collected;
5) CEO lacks significant public company experience, which could increase perceived risk; and
6) Investment in CapEx well ahead of customer need may not be recuperative.
COMPANY DESCRIPTION:
Omniture is one of the leading players in the Web analytics industry, with what we view as an impressive set of marquee customers.
COMPANIES MENTIONED IN THIS REPORT:
Company Exchange Symbol Price Rating Price Target
Google, Inc. NASDAQ GOOG $545.20 Buy $650.00
NetSuite Inc. NYSE N $20.15 Buy $27.00
RightNow Technologies, Inc. NASDAQ RNOW $14.26 Buy $17.00
salesforce.com, Inc. NYSE CRM $69.44 Buy $76.00
Taleo Corp. NASDAQ TLEO $19.51 Buy $34.00 |
