From Forbes On Line Posted on Yahoo ThreadNEW YORK. 11:35AM EST—Inktomi's (INKT) earnings announcement yesterday after the markets closed tells investors a lot about the future. The fact that first-quarter revenues jumped 343% to $10.7 million and losses were flat at a split-adjusted $.12 per share demonstrates to investors that management is building a well-run company with good products. Two functions crucial to the use of the Internet are searching and caching capabilities, and Inktomi has created the leading products in both these arenas.
Yet, Inktomi's share price hasn't reacted to this information. While other Internet companies trade at huge multiples based on little substance, Inktomi's shares hover around $158.
So what's the problem? There isn't one. Watch what happens later this year. Investors should look more closely at this business.
"All that's missing from Inktomi is an e-commerce angle," says Soundview Financial analyst Chris Tuttle. That will change in March, when the company will introduce a comparative shopping search engine built on top of Inktomi's technology which is already used to perform web searches for major sites like AOL's ICQ, Yahoo, Hot Bot, the Microsoft Network and Geocities. It's the launch of a product of this nature--the value of which is more obvious to retail investors--that Tuttle expects to send Inktomi's shares skyward.
"Inktomi will be the only independent company with this product that's not trying to compete with portals and shopping sites, so really Inktomi will be the only choice out there." According to Tuttle, Inktomi's technology is superior. Rather than just comparing prices the way first-generation shopping bots do, Inktomi's engine gives users 20 or 30 parameters--color, size, weight, make and so forth--to fill in and serves up independent product reviews. After amassing a selection of products it'll then get down to price comparison. "People shop in a much more complicated fashion than just comparing price," says Tuttle. "That's the last thing you do before you hit the register."
Even with a new e-commerce application, search functions aren't what analysts expect to propel the company into the black. What will do that is Inktomi's caching software Traffic Server, which stores the most frequently requested web pages on servers closer to the end user, saving time and money for them and their ISPs. This quarter Traffic Server became the first licensee to create a caching product in conjunction with networking giant Cisco, and its client list has grown to include leading Internet providers Cable & Wireless, Concentric Networks and PSINet.
Launched last March, Traffic Server already makes up 55% of the company's revenue, but that's not why it's anticipated to carry Inktomi to victory. It's because the software is paid for up front, unlike the search service which bills on a per-use basis. Further, Inktomi's search engine usage grows in proportion to the increase in web users, while demand for Traffic Server is driven by the growth in the number of web pages, a figure increasing at a far more exponential rate.
Clearly Inktomi will have to defend its caching space in the coming months as startups try to take it on, but having already outdone similar products from Sun Microsystems (SUN) and Cisco Systems (CSCO), those odds look good.
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