briefing today:
INKTOMI (INKT) 131 +11 13/16 Inktomi reported earnings after the close last night, and the stock has been rallying today. Inktomi may wind up being the only real "platform" company on the internet, a sentiment we expressed in our Stock Brief of February 11, 1999. Already an outsourcing tool for search engines, on a "per-hit" revenue model, they are applying their scalability models, derived in academic settings, to multiple internet applications. First it was the search engine, then caching products, and, coming in the summer, an ecommerce engine. The ecommerce engine is an exciting business model, because they have convinced merchants that want to sell on the internet to use the Inktomi engine, and pay, on average 7% of revenues. This highly unusual model has only the credit card model as a comparison. As we wrote in February, we would be skeptical, except for the fact that they had 300 merchants signed up, some of whom they named in a press release on April 7, and whose names are reported in today's release. The actual revenue numbers and earnings numbers show strong growth, but two items concern us. First is the sequential growth in portal services revenue. Q1 shows $6.4 million, but for the past six months, portal services revenue is $11.6, making sequential growth only 22%. The net is growing much faster than that, why aren't Inktomi's portal revenues? Are clients renegotiating contracts to lower prices? Do clients resent the per-hit model? (We would!) Network product services is not only larger, at $8.2 million in Q1, but growing more rapidly, at 48% sequential growth. The network products business has a model more like a software model: initial license fee, with ongoing maintenance fees. We are concerned about the portal growth business because its model is similar to the ecommerce model: pay-for-usage. Yahoo, for example, uses Inktomi's engine for all searches which are not in its hand-built "directory." Yahoo, just one client, pays on a per-hit basis, believe it or not. We can't believe that Yahoo searches are increasing at only 22% sequentially. The ecommerce engine looks incredibly powerful, as it is also leveraged. But what if clients eventually find it too onerous? Is the portal sequential revenue an omen? These are questions to ponder for the distant future, however, as Inktomi is becoming yet another "disconnected" internet stock, meaning it trades mostly on sentiment, and not on a real evaluation of its model' potential. And the sentiment is pretty positive today, as more and more people continue to realize Inktomi's potential, driving this company with $40 million in TTM revenue to a market capitalization of $6.4 billion. |
