Unheralded Linux Core Holding, SBAS (2 3/8)
The stock market has caught Linux fever, and rightfully so. The movement to
open source software architecture is one of freedom, empowerment and of
strong anti-Microsoft sentiment in the programmer community. Many feel it
is time to shake loose the Microsoft shackles: license fees (this is a big
one), self-serving architecture, predatory commercial and corporate
practices and a suffocating, windowless Windows world. It's hard for many
to also shake the visions of crushed Microsoft rivals like Corel,
Broderbund, Netscape, and WordPerfect.
The Linux movement is explosive, and many stocks have already made huge
moves as a result of being in the eye of the blast. "Open-source has proven
to be a viable vehicle for software innovation and delivery, and in the
process has also proven that alternatives such as community-based software
projects, which were inspired by open-source, have broad potential as
well'' said Carlos Caballero, president of OpenAvenue. Once Linus Thorval's
open source operating system became well-known, programmers and application
developers took to it like ducks to water. According to last week's press
release "software development projects conducted under open-source and
community-based licensing are creating a huge transformation in the
software industry". The market has already driven up significantly many of
the beneficiaries - Red Hat (RHAT), Applix (APLX), MRV Comm (MRVC), Corel
(CORL) - and investors are actively searching for the other major players.
Our aggressive buy recommendation StarBase (SBAS,2 3/8,NAS), out of Santa
Ana, CA, will be a prime beneficiary of the new order. Its new OpenAvenue
portal is designed to be a focal point for the open source community,
allowing software developers worldwide to collaborate sharing knowledge and
source code over the Internet. SBAS is already known as a key player in the
software configuration management field and is a winner of numerous
awards. Open Avenue will put it smack-dab in the middle of the Linux
movement, "specializing in the hosting, management and distribution of
world-wide collaborative software development projects" - all this without
any need to increase overhead. The portal will serve as a place where the
newly-created open-source community (Linux, Windows, UNIX, Java etc.) will
be able to maintain a dialogue about their freely hosted development
projects, where StarBase will host development projects and where File
Transfer Protocols (FTP's - an important issue) will be established,
creating a virtual developer community. Additional value added partners who
share StartBase's excitement and vision have been identified and will be
shareholders - some of these are household names. SBAS will run the show,
however, and SBAS shareholders will be the greatest beneficiaries in the
group. To quote Rendell Swart, of StarBase's investor relations, Open
Avenue will "harness the talent of a community of developers on the
Internet" and manage the process of global development. This is very
exciting and potential very powerful.
StarBase offers "a complete family of advanced Internet and Intranet-based
technical collaboration products for web site production, e-commerce
application development and software configuration management for mission
critical applications". For example, Frito-Lay now uses over 200 licenses
of their StarTeam product and considers it the tool of choice for
development on Windows NT. Frito-Lay has implemented StarBase technology
across approximately 40-50% of their IT division and "further deployments
of StarTeam are planned for the future". StarBase was named among the
fastest growing independent software vendors for Microsoft Windows
applications, ranking 25th. Other notable clients include AT&T, EDS,
Hewlett-Packard, Lucent, Motorola, Siemens, eCompany Networks, SkyMall and
Syncor Int'l, not to mention a partnership and licensing agreement with
Macromedia.
A recent International Data Corporation (IDC) report shows that the
Software Configuration Management (SCM) tools market grew a healthy 25% in
1998, increasing from $477M to $595M in worldwide revenues. According to
IDC, the 32-bit Windows operating environment accounted for 39% of the SCM
market revenues in 1998 and is forecasted to grow dramatically to 61% by
2003, due to the emerging Internet applications area, specifically e
business, and factors inherent to the Web application environment such as
computing over the Web.
The technical collaboration that StarTeam - soon to be "migrated" to Linux
as well - brings to software development is revolutionary and a much needed
boost for the industry. StarBase provides two levels: (a) Office
collaboration which operates on files and office documents (less
technologically apt members) and (b) Technical collaboration, which
operates on secured application inventories. StarTeam provides the software
which is team oriented and object based. The project enhancement and
productivity increases provided by this software are unmatched. It reduces
delivery time, controls team efforts, and in turn improves software
quality. StarTeam Workstation supports networks such as Novell's NetWare,
Microsoft Windows, Artisoft's LANtastic, and IBM's LAN server.
Though the company is small, it is becoming a force to be reckoned with.
StarBase grew significantly faster than the overall SCM market with 1998
software revenues of about $5.5 million versus $1.6 million in 1997. The
June 1999 quarter's earnings report also showed revenue growth of over 200%
and a 70% reduction in the per-share operating loss (partly due to more
shares outstanding). If one does no more than annualize the June quarter's
sales, the market cap is only 4.7 times sales - a screaming bargain for a
200% grower with 87% gross margins. What's more, the company expects to be
profitable in the December quarter. Quoting Bill Stow, the CEO, "from the
first introduction of our web-based products, we have moved to
profitability more rapidly than other comparable companies in this
market".
The investment community is taking notice. Though the company, with 32M
shares outstanding and 84% in the float, isn't followed by any analysts, a
top-tier brokerage firm may be releasing a report soon and a regional firm
may do likewise. There is one large institutional holder with over 5%,
Amerindo, who have been on board for a couple of years. Open Avenue,
needless to say, is an excellent candidate for an IPO soon and discussions
with underwriters along that line have started.
The stock has been trading sideways for over 5 months, between $2 and $3,
and is now near the low end of the range. However, volume is picking up,
such as on Friday's brief spike to $2.78, after the Open Avenue press
release came out, and the word is getting out about the Linux angle.
Our minimum expectation on SBAS is a break-out past the prior 3 1/2 high,
set in early 1998, but we expect considerably higher prices, especially in
the event of an OpenAvenue IPO or a wirehouse research report.
Happy trading, and don't forget to visit our Alert Investor website for
updates. <A HREF="http://207.158.234.93/index1.html">Alert Investor</A>
Peter Kertes |
