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Web Collaboration
Stocks Capitalize on Travel Fears
Travel stocks
have been sliced into Swiss cheese.
From airlines
and hotels, to gaming companies and cruise lines, the entire travel
sector is still reeling from the September 11th tragedies - and
with good reason. As a result, we're still scared and holding on
to our wallets.
Let's be honest.
Many Americans are now at least somewhat afraid to travel.
Vacation is
hardly at the top of everyone's minds during these uncertain times.
Even business travelers are now looking for alternatives to avoid
increased airport security and likely higher ticket prices.
Enter teleconferencing
- particularly the more cost-effective world of Web-based conferencing.
While conferencing
is never going to entirely replace personal contact - we're always
going to want to shake someone's hand and stare them in the eye-
this entire sector is ripe for growth as a serious travel alternative,
particularly in light of the recent terrorist attacks.
Analysts now
expect the Web-based conferencing market to grow 1000% from $230
million to over $2.2 billion by 2005. That's serious growth estimates.
The Wall St. Journal reported recently that usage of conferencing
services increased 10% to 50% since the attacks.
With this in
mind, we thought it would be useful to take a look this week at
three of the largest publicly traded players in the Web-based conferencing
side of the teleconferencing market.
All three are
attempting to essentially become the "dial tone" for meetings
on the Web. Is it time to be pulling the "BUY" switch
on the group? Let's find out.
WebEx Communications [WEBX]
WebEx has emerged
in the past year or so as the most well known Web collaboration
software firm among investors. The company's shares have rocketed
up nearly 70% since the September 11th tragedy. Founded in 1996,
WebEx's entirely Web-based carrier-class communication services
are now used by over 4,000 corporations (not all paying). Clients
include technology heavyweights like Siemens, Oracle
and Tibco, as well as manufacturing titans like Reynolds
Aluminum, Phelps Dodge and Ingersoll International.
Sales surged
over 300%, and 25% sequentially, in the second quarter to $18.4
million, as WebEx narrowed its operating loss almost 30% sequentially
to $5.3 million. All signs point to strong new and existing customer
growth. WebEx added 800 new customers during the quarter and saw
its network usage increase over 50% sequentially for the period.
All signs point to WebEx being able to follow through on its current
goal of reaching profitability by year's end.
With sales of
$77 million for 2001 projected, and a current market cap of roughly
$1 billion, WEBX is currently trading for nearly 13 times forward
sales. Not cheap. Even with expected 2002 earnings of $.24 cents
per share, WEBX still sports an extra frothy 2002 PE of 120 or so.
While WebEx continues to churn out blockbuster top line numbers,
and is only a step or two away from profitability, expectations
for this stock look too high right now. This valuation just doesn't
smell right in this kind of market.
RagasRating:
NEUTRAL
Centra Software [CTRA]
Centra checks
in as a strong number two to WebEx in the Web collaboration software
business. More than 1.5 million users currently use the company's
e-learning and business collaboration software. Customers include
everyone from Stanford University and The University of
Tennessee, to Century 21 and Domino's Pizza. Centra
currently counts nearly 600 businesses, schools and organizations
as its clients. Notable Centra partners include the likes of Microsoft,
Cisco, Oracle and EDS.
Second quarter
sales leapt nearly 100% to $9.8 million. Centra's quarterly loss
declined sequentially over 40% to $3.5 million on a pro forma basis.
In addition, Centra continues to ![]() stick
by its target of reaching pro forma profitability by the fourth
quarter. In addition, management is standing by its previously raised
2001 revenue range of $46 to $50 million. Centra has now met or
beat analysts' estimates for the past four quarters.
While not as
frothy as WEBX shares, Centra still doesn't exactly look like a
bargain at nearly $9.80 per share ($240M market cap). The company's
$65 million in cash, and likely 100% sales growth this year is comforting,
but CTRA's forward PE is still in the 35-43 range. Centra shares
have been as low as $2.75 per share in the past 52 weeks. We'll
continue to watch CTRA's march to profitability over the coming
months, but aren't going to officially step into the sector right
now and plunk down roughly ten bucks per share.
RagasRating:
NEUTRAL
Raindance
Communications [RNDC]
Raindance Communications
is the forgotten stepchild of Web collaboration stocks. Formerly
known as Evoke Communications, Raindance looked like a lost
cause as recently as January. Now it may actually end up as a quiet
survivor. The company has cut its quarterly cash burn from an obscene
$31 million to $4.2 million a quarter since the second quarter of
last year. Over 1/3rd (112 employees) of the firm's work force was
fired back in January. Raindance is now targeting EBITDA profitability
by the first quarter of 2002.
Total revenue
for the second quarter checked in at $9.1 million, which represented
nearly a 300% annual increase in core revenue. The EBITDA loss for
the period decreased to $1.7 million. Raindance expects to post
full-year 2002 sales of $53 to $55 million, which would represent
40% to 50% annual sales growth. The company also announced that
it still expects to post total year 2002 sales of at least $36 million.
A major new contract with Oracle signed during the quarter should
help achieve this goal.
The rapid turnaround
at Raindance has clearly gone unnoticed by even the most savvy micro-cap
investors. With $30 million in cash still on hand, Raindance looks
to have enough fuel to reach profitability. At this time, only two
analysts officially cover the stock and neither expects positive
EPS from RNDC in fiscal 2002. Even at $2 bucks per share, though,
RNDC still checks in with a market capitalization that tops $100
million. While this valuation is more in line with the risk-reward
opportunity that Web collaboration represents, we'll pass for now.
RagasRating:
NEUTRAL
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