IARC vs. VIGN
Stock of the Day
Oct 20, 1999
Vignette Software: E-Commerce Problem Solver
senior analyst: Garrett Bekker 10/20/99
Business-to-consumer (B2C) e-commerce stocks were last year's high-fliers, but we're not particularly fond of many of the companies in the sector, especially the e-tailers.
The firms are in an extremely competitive industry with low profit margins, low barriers to entry and dependence on advertising revenue that for the most part will be directed to the ?big boys? like Amazon.com (NASDAQ:AMZN - news) , Ebay Inc. (NASDAQ:EBAY - news) and Priceline.com (NASDAQ:PCLN - news) . Aside from these select names, the ultimate winners of B2C e-commerce will be consumers.
Even optimistic Internet analysts like Henry Blodget of Merrill Lynch expect the majority of these Internet stocks to fail.
From an investment standpoint, we prefer the ?business-to-business,? or B2B, companies that operate behind the scenes of the better known B2C firms. Because while the Egghead.coms (NASDAQ:EGGS - news) and ValueAmericas (NASDAQ:VUSA - news) of the world are fighting each other tooth and nail, infrastructure providers will be cashing in on the action no matter who comes out on top.
One company that is extremely well positioned in this space is Vignette Corp. (NASDAQ:VIGN - news) , which provides e-commerce applications to more than 300 blue-chip clients including Merrill Lynch (NYSE:MER - news) , CNET (NASDAQ:CNET - news) and DaimlerChrysler (NYSE:DCX - news) .
Vignette's products, such as StoryServer and Syndication Server, help companies manage their e-commerce initiatives. The flagship product, StoryServer, enables content management and personalization, which lets Web sites determine a customer's preferences and needs and then delivers content and advertisements geared to that customer.
For example, a customer might visit a Web site for children and click on an article about teething, the personalization software can infer that the visitor probably has a child less than two years old and offer content suited to infants and toddlers. StoryServer can also suggest content based on the archived choices of visitors with similar interests.
Personalization technology is one of the key advantages B2C companies have with the Internet as opposed to traditional media such as television.
The company's Syndication Server lets firms exchange digital products and content with a network of partners and distribution channels. For example, a manufacturer can use Syndication Server to distribute its on-line catalog to a network of Web sites belonging to retailers and wholesalers or other firms it has marketing alliances with.
Vignette also has a Multi-Channel Server application that integrates customer relationship management data across several means of communication, including telephones, pagers and the Web. The program is designed for companies that are using the Web and Internet protocols to communicate with their sales forces, suppliers and marketing agents. A company's information can be accessed remotely using portable devices such as laptop computers and personal digital assistants.
Vignette also recently formed a partnership with IBM (NYSE:IBM - news) that should improve its long-run prospects. The agreement calls for IBM to integrate its e-business software offerings with StoryServer, thus making Vignette a strong competitor to Broadvision, which recently partnered with Hewlett-Packard (NYSE:HWP - news) , and the alliance involving Sun Microsystems (NASDAQ:SUNW - news) , America Online (NYSE:AOL - news) and its Netscape unit.
The demand for Vignette's products has been soaring, as both pure ?dot-com? Internet players along with traditional bricks-and-mortar (BAM) firms scramble to carve out their presence on the Web. One of the reasons the demand for these products is expected to be so strong is that the Internet has accelerated the business cycle.
Companies that don't move quickly risk losing out to rivals and may never catch up. Thus companies are scrambling to develop and implement their software applications rapidly to avoid falling behind. In the past, many companies have developed internal solutions for content management and personalization.
But as the complexity of corporate Web sites increases, in-house information technology staffs will find it increasingly difficult to design state-of-the-art Web sites in a reasonable time frame. Thus firms are expected to rely increasingly on pre-packaged applications.
Not only has demand for the B2B e-commerce products been surging, but so have the share prices of the companies that supply this software. Since closing at $71.13 on September 17, Vignette has been on a tear, closing Tuesday at $108.84, up $9.34 for the day.
Despite this run, we think Vignette still has room to run, for a number of reasons.
First of all, Vignette trades at roughly 28.8 times its 2000 revenue estimates, a substantial discount to close competitor Broadvision (NASDAQ:BVSN - news) , which trades at 32.1 times its 2000 sales forecasts.
Additionally, the market opportunity is large and under-penetrated, and thus should provide room for a number of players. Market research firm International Data Corp. projects that license revenue for Internet commerce applications will increase to $13 billion by 2003, up from $1.7 billion in 1999.
Still, like most e-commerce companies, Vignette has yet to turn a profit, and the consensus among analysts is that the company will lose $0.21 per share in the September quarter and $0.17 per share in the December quarter.
But sales are growing. The company had $24 million in revenue through the first six months of 1999 compared to $5.2 million for the first half of 1998. Analysts estimate the company will have $105 million on the top line for all of 2000.
Bottom Line:
The future appears bright for Vignette, particularly given the forecasts for 2000. In addition, the company is attractively priced versus its closest competitors. We think long-term investors looking for another way to play the Internet should take a long look at this company.
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F' em!!
Right Homer & Gomer, 'cause we got Women.com and the HeeHaw P.D.
Yup, we got'em right where we want'em.......... |
