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Technology Stocks : Open Market (OMKT) -- Ignore unavailable to you. Want to Upgrade?

To: Marty who wrote (544)	8/13/1998 2:45:00 PM
From: Greg h2o	Read Replies (1) \| Respond to of 2004

Hope this is helpful: PW PW PW PW PW PaineWebber PW PW PW PW PW Rating=1 (OMKT) Closing Price=$14 1/4 Current FY EPS EST=$-0.29 Next FY EPS EST=$0.25 FY End=December August 12, 1998 OMKT: DSOS STILL NOT A MAJOR CONCERN KEY POINTS 1. Recently, OMKT released its SEC 10-Q for 2Q98. 2. The 10-Q disclosed one well known issue, rising DSOs and one new piece of information, that OMKT factored approximately $3m in accounts receivable. 3. We believe both issues are typical and not particularly troublesome due to the blue chip nature of OMKT's customers, as well as its current cash position due to recent investments. 4. We reiterate our Buy (1) rating for OMKT with a 12-month price target of $25. INVESTMENT SUMMARY THE 10-Q DISCLOSED ONE WELL KNOWN ISSUE, RISING DSOS AND ONE NEW PIECE OF INFORMATION, THAT OMKT FACTORED APPROXIMATELY $3M IN ACCOUNTS RECEIVABLE The 10-Q disclosed one well known issue, rising DSOs and one new piece of information, that OMKT factored approximately $3m in accounts receivable. -- We believe both issues are typical and not particularly troublesome due to the blue chip nature of OMKT's customers, as well as its current cash position due to recent investments. -- OMKT's cash position last quarter was approximately $20m and for financing reasons decided to exercise a pre-existing factoring agreement in place of $8m. In order to manage cash and fund receivables, OMKT factored $3m of its accounts receivable for cash. -- As any normal enterprise software business, OMKT allows favorable extended payment terms to its customers, especially ones internationally. Note, 26% of OMKT's sales are international (Pacific Rim 4%, Japan 3%, Europe 17%, and other 2%). In order to sell internationally, attractive payment terms are typically used in the software industry. Furthermore, Open Market has a blue chip client base with extremely reliable credit. -- More importantly, OMKT's recent investment by CMGI and Heights Capital Management have improved OMKT's cash position to $43m, which alleviates any pressure to factor any more receivables. OMKT now has the cash on hand to more cheaply manage its cash position and fund receivables. -- We believe the recent weakness in the stock is a buying opportunity. WE REITERATE OUR BUY (1) RATING AND OUR TWELVE-MONTH PRICE TARGET OF $25 We continue to estimate approximately 50%+ yearly total revenue growth for 1999. The peer group is trading at approximately a 7x multiple that provides a price target of approximately $25. Therefore, due to the defensibility of the recently granted patents and the continued growth in CSPs (and recurring leverage they provide), we are using a one-year price target of $25 and maintaining our Buy (1) rating. RISKS Open Market has limited operating history, and no operating profits. The stock should be considered for high risk tolerant investors. Open Market competes in a highly competitive as well as rapidly changing marketplace. Any failure in execution could dramatically impact its revenues. The company could potentially compete with a number of larger competitors such as Microsoft, IBM, Oracle, and others, who all have significantly larger resources, sales organizations, and customer bases. In addition, electronic commerce in general and electronic commerce software is a nascent market with little forward visibility. In additional, Internet stocks have high betas, and high volatility, and should be considered for risk tolerant investors only. Prices of companies mentioned as of August 12, 1998: CMG Information Services CMGI $79.25 International Business Machines IBM $128.50 Intel 1 INTC $84.56 Microsoft 1 MSFT $103.44 Open Market 1,2 OMKT $14.25 Oracle 1 ORCL $24.50 1 PaineWebber, Inc. makes a market in this security. 2 PaineWebber, Inc. has acted in an investment banking capacity for this company. The information contained herein is based on sources we believe to be reliable, but its accuracy is not guaranteed. PaineWebber Incorporated and/or Mitchell Hutchins Asset Management Inc., affiliated companies and/or their officers, directors, employees or stockholders may at times have a position, including an arbitrage or option position, in the securities described herein and may sell or buy them to or from customers. These companies may from time to time act as a consultant to a company being reported upon. Copyright 1998 by PaineWebber Incorporated, all rights reserved