"Separating the Winners from the Losers"
from Raging Bull's NETP board.
ragingbull.com
By: Intentional
Reply To: None Saturday, 29 Apr 2000 at 2:20 AM EDT
Post # of 8108
There's a good article in April's Business 2.0 (p205) called "Separating the Winers from the Losers" by J. Neil Weintraut and Walid Mougayar. They list ten indicators of "Substance" in a company, and ten indicators of "Froth." Below I run Netp through the mill.
SUBSTANCE
1. The company is a leader.
Yep. Leader in Personalization in general, and in Enterprise Personalization for Retailers in particular.
2. It has smart people.
Seems to have a lot of 'em. Gotta keep 'em coming.
3. Relentless innovator.
This seems to be very true. Their technology lends itself to unique and broad applications. They've been investing heavily in R&D. I think the innovation level is high.
4. It delivers.
This means the company is focused on executing its business model at all levels. I think the Netp strategy is becoming pretty coherent. The various products all work together and allow for comprehensive, scalabel, and tailor-made solutions appropriate across a broad range of touch-points and channels.
5. It's fast.
The company is moving very rapidly. The acquisition of KD1 in Feb, the SPO for $85M, the quarterly 50% revenue growth, the reach into Japan with Sony as a customer, and the two bigf customers in Europe, the entry into the financial, entertainment, and telecom spaces with JP Morgan, MGM, Sony, and SBC speak to a company that is maybe moving TOO fast.
6. Competes with partners.
The old co-opetition strategy. For example, although Netp arms Broadvision and Vignette in the eCRM space, it also plays a bit there too, altough mainly with retailers. So, although Netp is an arms dealer, it also has a significant army itself.
7. It passes the diappearance test.
If Netp disappeared would anyone notice? A lot of people would notice because Netp's value proposition is unique and extraordinary. It's real-time technology is state-of-the art and protected by patents. These help to build a competitive advantage moat around the business model.
8. Cash on hand.
I think we're at $120M now. Should be enough pocket money until Netp's profitable 1Q'01 as I expect.
9. Metric leading metric.
Netp just announced "he largest
customer base in the realtime personalization and customer-focused analytics technology sector." It sounds a little like Ferrari claiming they have the lowest price car in the expensive-red-sports-car-from-Italy category, but still, the customer base is large and they're number one at it. Counting customers can get tricky. Direct, and indirect customers of the products and users of the technology both are big numbers.
10. It's a buyer, and not a seller.
This refers to acquisitions. Eat or be eaten. Netp ate KD1, proving its shark heritage.
SCORE: 10 for 10
FROTH
1. Executive exodus.
Nobody leaving. Good news. It's the Minnesota lifestyle.
2. Another me-too.
If Netp were trying to take on Vignette, Epiphany, and Broadvision in the eCRM game, they'd be just a me-too company. But with their decision to focus on enterprise personalization for retailers, their core collaborative filtering technology, and their sponsorship and leadership with the Personalization Summit, Netp has carved out a defensible market niche.
3. Risky business.
The authors believe risky businesses occurs when industries create no clear-cut leaders. In personalization that's true. In the case of the enterprise -wide solutions for retailers, Netp's the clear leader.
4. Declining quarter-to-quarter sales.
Netp has the reverse problem of 50% quarterly growth. Definitely not a problem!
5. Low price-to sales ratio
I figure this at a little over 13 using $509 for a valuation and 4 x Q1 revenue (4 x 9.5 = $38M). A good average for similar businesses is 33 says the article. Remember Hany Nada of Piper Jaffray using 27X and then 20X Y01 revenues to set his stock price? Similar logic here. Unfortunately, Netp's ration is very low. This is clearly a problem, and related to the stock price. The authors state that this means "the company isnt' getting any respect, not that it's undervalued."
6. Stock is at 10 percoent of its 52-week high
Netp spiked to a high of 66.5 and down to a low of 9.75. So Netp went down to 14.7% of it's 52-week high, but is now at 29.1% of its high. So not great, but not pathological. When you get down to 10% of the high, then there's something really rotten in Denmark.
7. Flat metrics.
The great majority of Netp metrics are improving. The stock price metric is the only bad one I can think of off hand.
8. Slow website.
Not so relevant to Netp, althought their site seems fast enough. This refers to companies where the website is a key part of the business. In Netp's case, the real-time recommendation engine is fast fast fast and getting faster all the time. Maybe it can be Akamia-ized or improved with CacheFlow or Digital Island as the article suggests.
9. Deal-breaker.
This means that partners are canceling agreements. No sign of this that I'm aware of. Everyone wants there stuff because it makes them money!
10.Few analysts follow it.
The article says that if only 3-4 analysts follow it one year after it's gone public, that that's not enough. They mention that Amazon is followed by 33 analysts, YHOO 30, Ariba 18, and Commerce One 13. The record indicates that Netp has fallen from 10 analysts to 8 analysts, but I'm not an expert on this. I do think that few analyst follow Netp CLOSELY. This is a problem. Retail stockholders' interest in the company is not good imho, particurly since the crash has wiped many of them out.
SCORE: 8 out of 10.
To address the two weaknesses from above (ie low Price/Sales ratio, and not enough analysts), it would seem that Netps' main focus should be on getting more respect for the company from analysts, investors, and shareholders. This lack of respect helped to grease Netp's slide during the crash. How about sending the Nightline tape out to all shareholders? Or how about a technology demo for analysts and customers?
Total Score: 18 out of 20
Pretty darned good in my book.
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