NETP Stock of the Day - 5th January, 2000
$70 a conservative target. By senior analyst with Yahoo Investors Daily.
fnews.yahoo.com
Stock of the Day
Jan 05, 2000
Net Perceptions: An E-Commerce Bargain
Senior Analyst: Garrett Bekker (1/5/00)
Net Perceptions (NASDAQ:NETP - news) was up big Monday, gaining 16.7% to close at $49 after opening at $63.
The move was apparently driven by favorable research reports released by Briefing.com Internet guru Steve Harmon and Hambrecht & Quist?s James Pettit.
Alas, on Terrible Tuesday, the shares gave back $3.69, to close at $45.31. But this was on a day that saw a bloodbath across Wall Street.
Harmon placed the company on his list of 10 top stock picks for 2000. The list was pre-released on Friday in order to give investors plenty of time to research his picks.
The early release allowed buying pressure to build over the long weekend.
Pettit issued a new research report with a price target of $70 per share.
Although it may appear we?re jumping on the bandwagon, individualinvestor.com readers will note that we had been highlighting Net Perceptions in our morning calls for having been largely ignored in the year-end Internet rally. The momentum actually started to kick in last week, with a move of 21.6% on Thursday and 17.1% on Friday.
So why is Net Perceptions our Hot Stock of the Day?
Simple: Despite the recent gains, we think the company is still one of the more undervalued e-commerce infrastructure stocks we follow. We think $70 is conservative and there?s still significant upside left in the stock.
Net Perceptions is one of the leading providers of personalization software. Personalization software lets Web sites increase ?Internet intimacy? by determining a customer?s preferences in real time and then delivering content (advertisements, product information, etc.) appropriate for that customer.
The personalization function helps e-commerce companies achieve their goal of ?mass customization,? and market to customers on a personalized, one-to-one basis.
To understand the power of personalization, imagine walking into a store and all the products you don?t like suddenly disappear and are replaced with products you like and are willing to buy.
Net Perceptions also introduced several new products recently: Knowledge Management, Marketing Campaigns and the Recommendation Engine.
During November, the company released version 5.0 of its E-Commerce software program. The package includes Personal Shopper, Smart Merchant and Decision Support.
Personal Shopper enables personalization by understanding a user?s preferences and past behavior.
The software can be thought of as a virtual shopping assistant.
Smart Merchant allows retailers to recommend items, incorporate product promotions and target customers based on their online behavior. Decision Support is the result of a strategic partnership with MicroStrategy (NASDAQ:MSTR - news) , which allows companies to analyze the results of their personalization efforts.
The products allow companies to sell more products to their customers and generate more sales from each order.
Net Perceptions also has an impressive array of strategic partnerships with e-commerce powerhouses such as Allaire (NASDAQ:ALLR - news) , BroadVision (NASDAQ:BVSN - news) , Open Market (NASDAQ:OMKT - news) , Oracle (NASDAQ:ORCL - news) and Vignette (NASDAQ:VIGN - news) .
The company also has amassed more than 138 customers in various industries, such as music and entertainment biggies Bertelsmann-BOL, CDNow (NASDAQ:CDNW - news) , Sony (NYSE:SNE - news) , Tower Records and Virgin Online Megastore.
In addition, the company is working with both brick-and-mortar retailers and online merchants, including Egghead.com (NASDAQ:EGGS - news) , JC Penney (NYSE:JCP - news) , Value America (NASDAQ:VUSA - news) .
During the third quarter, revenue jumped 255% year-over-year, versus 184% in the second quarter. The quarter marked the second consecutive quarter in which year-over-year revenue has accelerated. On a sequential basis, revenue was up 46%, following a 48% increase for the second quarter.
For the fourth quarter, estimates call for Net Perceptions to generate sales of $4.97 million, an increase of 21.2% from the prior quarter. However, note that last quarter Net Perceptions beat the average consensus revenue estimate by 27%. So we?d be disappointed if there weren?t another positive surprise.
For fiscal 2000, sales are expected to more than double, from $13.8 to $28.7 million. The revenue increase translates into a projected price/sales multiple of 33 and compares favorably with other personalization providers such as Art Technology (NASDAQ:ARTG - news) at 54.6, Broadbase (NASDAQ:BBSW - news) at 75.5, E.piphany (NASDAQ:EPNY - news) at 85.8 and Vignette at 68.
The company?s valuation relative to its peer group is even more impressive when you take into account the firm?s expected growth rate, which ranks fifth among our universe of 15 e-commerce infrastructure plays. Generally, investors are willing to accord a higher multiple to companies that are expected to grow faster.
Net Perceptions is currently trading at 35% of its expected growth rate, substantially less than the group average of 59%, and well below companies such as BroadVision, which with a price/sales to revenue growth (PREG) ratio of 147 is trading at nearly a 50% premium to its sales growth rate.
We think Net Perceptions is one of the best values in the e-commerce infrastructure industry, which we expect to demonstrate continued strong growth as Y2K slips back into the rear view mirror and companies focus on other initiatives such as e-commerce. However, we advise investors to proceed with caution.
Bottom Line:
While we think Net Perceptions is attractively valued relative to its peers, its stock performance will be determined by the performance of the overall sector. If the sell off in tech and Internet-related stocks continues, Net Perceptions will have a tough time swimming against the tide. |
