THE WEEKLY SOFTWARE REPORT, VOLUME 2, #44 November 12, 1999
SYMBOL(S): MSWK, AGS, ALLR, BEAS, BMCS, BVSN, CPWR, EPNY, MRBA, MSFT, ORCL, PRSW, PVSW, QSFT, SEBL, SILK, T
ANALYST(S): SENK, MARSHALL
RATING: NR;LTA;BUY;LTA;BUY;BUY;SBUY;BUY;BUY;BUY;BUY;LTA;LTA;BUY;SBUY;BUY;BUY
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Synopsis:
The following synopsis is qualified in its entirety by the more detailed information contained in the full research report, including the discussion of certain risks associated with an investment in this security contained in "Investment Risks."
Research dated prior to September 1, 1998 was prepared by an entity that was acquired by BancBoston Robertson Stephens Inc.
BREAKING UP IS HARD TO DO .... but not, in our view, as hard as transforming Radio Shack into the Internet broadband Mecca of the 21st century. Fresh on the heels of Microsoft antitrust litigation, with every pundit on the planet pondering the "breakup value" of the "baby Bills", the company yesterday announced that it is planning to partner with Radio Shack, the ruler of the low-cost consumer electronics experience. The deal includes a $100 million investment in radioshack.com, late to the eCommerce game of course, but who else on the Web will sell you an extra-long phone cord? Remember, this is the company that is owned by the former Tandy computer, which you'll remember as that early 80s high-technology powerhouse. With only 30% of Americans surveyed Internet users, we would like to think that there are slightly more timely mountains to climb than installing broadband access in every one of Radio Shack's 7,000 stores simply to try to cross-sell that shopper looking for a phone cord splitter. But maybe we just need to be more open-minded. Microsoft, like Sprint, will install a "store-within-a-store" in Radio Shack selling everything from broad to narrowband Internet access, WebTV, palm devices with Windows CE, and Windows home networking solutions. We think Microsoft has eyed the successful Sprint efforts (Radio Shack is now the biggest retailer of cellular phones in the country, with a 70% market share) with hopes to replicate them and most importantly wants an squarely entrenched first-mover advantage in convincing consumers to take the plunge into broadband.
However, we see some problems with this strategy. Cellular phones, in our opinion, were a reasonable progression for Radio Shack, since it has sold landline phones and paraphernalia for years. In addition, we don't think that sales of Windows CE palm devices, WebTV, Windows Home Networking, and MSN Access combined will really begin to approach the success of cell phones, making these store-in-a-store locations especially costly real estate for the amount of sales generated. And broadband, of course, is very early in its development. The biggest problems, in our opinion, are that Radio Shack has never (at least in the 20-year recent past) really been the place where consumers go to buy cutting-edge technology or services, especially in the computer area.. We also believe that the branding of Microsoft products, long positioned as premium, will be diluted by placement in what is essentially a low-cost electronics peripherals retailer. Although one of the first agreements Microsoft ever solidified to license its operating systems (in this case Microsoft Basic) was for the original Tandy Radio Shack computer, history has famously detailed where that product went. Or didn't, as the case may be. So is this agreement a devastating new strategy or a secret settlement with Judge Jackson that could erode already-shaky market share, branding, and product development?
In other news, two timely items that caught our attention this week: First, leading application management vendor Quest snapped up another acquisition to add to its stable of best-of-breed solutions that monitor application and information availability, performance, and reliability. The company bought Foglight Software, a provider of enterprise eBusiness application availability solutions, for 1.3 million shares of common stock. The Foglight RAPS solution monitors a company's complete Web-based business infrastructure, from the Web server to the networking infrastructure, operating systems, back-end database servers, and end-user response time experiences. Foglight adds a critical piece to the Quest stable - eBusiness monitoring and management, giving the company a solution that can address the fast-growing Internet content and commerce market.
Second, we initiated coverage on E.piphany this week, which in our opinion is emerging as one of the first true franchise company in the eBusiness applications space. E.piphany's E.4 system offers an easy-to-use, powerful architecture for extracting, analyzing, and executing on customer information to develop deep, personalized customer relationships both online and offline. We believe that both E.piphany and Quest are potentially significant companies and are poised to be the pre-eminent franchise names in their respective spaces. In our view, bothhave the characteristics of companies destined to lead their markets: a world-class management team, tremendous market opportunity, and best-of-breed, leading products. Needless to say, these are two of our favorite names in the space.
Tune in next week for more dispatches from the front....
****THE SITE OF THE WEEK AND MINUTE ON MICROSOFT****
As a follow-up to last week's Minute on Microsoft column, we discuss the increasing market share of Internet Explorer in the browser market. To visit our Minute on Microsoft column, please visit our Web site www.softwarestocks.com or click on the link provided below.
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In this week's Featured Site of the Week, we focus on a new company to the group: E.piphany. In the column, we highlight what the company does and the critical business problems their software solves. For additional information on our views on E.piphany and our user conference visit, please visit our Web site www.softwarestocks.com or click on the link provided below.
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1 Week Change
Price From 52- RS
Price Change 1999 52-Wk Wk High Price
Ticker Rating 11/11/99 Percent YTD High to11/11/99 Target
Software AG Systems AGS LTA $15.94 9.4% -12.1% $20.38 -21.8% $12
Allaire ALLR BUY $120.50 34.0% 502.5% $145.00 -16.9% $150
BEA Systems BEAS LTA $70.00 32.4% 471.4% $66.50 5.3% $75
BMC Software BMCS BUY $67.38 12.2% 51.2% $73.13 -7.9% $75
Brio Technology BRYO BUY $39.06 30.2% 120.8% $42.50 -8.1% $60
BroadVision BVSN BUY $81.56 0.9% 664.6% $95.94 -15.0% $100
Compuware CPWR SBUY $31.06 7.8% -20.5% $39.91 -22.2% $40
E.piphany EPNY BUY $103.00 27.0% 543.8% $143.00 -28.0% $200
Informatica INFA BUY $71.88 -1.0% 349.2% $92.50 -22.3% $80
Interwoven IWOV BUY $85.50 5.2% 402.9% $94.06 -9.1% $125
Intraware ITRA BUY $37.00 55.0% 131.3% $52.38 -29.4% $55
Keynote KEYN BUY $41.50 -13.5% 196.4% $57.50 -27.8% $90
Marimba MRBA BUY $35.13 -12.7% 75.6% $74.38 -52.8% $65
Microsoft MSFT BUY $89.63 -2.3% 29.2% $100.75 -11.0% $100
NetIQ Corporation NTIQ BUY $52.13 25.2% 301.0% $49.75 4.8% $37
Oracle ORCL BUY $62.06 6.7% 115.9% $61.38 1.1% $75
Persistence PRSW LTA $13.50 49.0% 22.7% $30.50 -55.7% $11
Pervasive PVSW LTA $12.81 23.5% -33.4% $38.00 -66.3% $15
Quest Software QSFT BUY $66.38 -9.2% 374.1% $83.31 -20.3% $100
Siebel Systems SEBL SBUY $123.13 1.5% 262.8% $139.44 -11.7% $150
Silknet SILK BUY $94.00 12.4% 526.7% $105.00 -10.5% $100
Silverstream SSSW BUY $80.50 41.4% 403.1% $94.00 -14.4% $100
TSI International TSFW BUY $40.63 26.5% 69.7% $39.75 2.2% $60
Vitria Technology VITR BUY $88.44 36.1% 452.7% $89.88 -1.6% $75
NASDAQ Composite Index 3197.29 4.6%
Robertson Stephens maintains a market in the shares of Allaire Corporation, BEA Systems, BMC Software, Brio Technology, BroadVision, Compuware, E.piphany, Inc., Informatica Corporation, Interwoven Inc., Intraware Inc., Keynote Systems, Inc., Marimba Inc., Microsoft Corporation, NetIQ Corporation, Oracle, Persistence Software, Pervasive Software, Quest Software, Siebel Systems Inc., Silknet Software, Inc., SilverStream Software, Inc., TSI International and Vitria Technology, Inc. has been a managing or co-managing underwriter or has privately placed securities for BEA Systems, Brio Technology, BroadVision, Informatica Corporation, Interwoven, Intraware Inc., Keynote Systems, NetIQ, Persistence Software, Pervasive Software, Silknet Software Inc., SilverStream Software, Software AG, TSI International and Vitria Technology within the past three years.
Unless otherwise noted, prices are as of Thursday, November 11, 1999.
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