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BUSINESSWEEK ONLINE: Business Week ebiz | |||||||||||||||||
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Is Critical Path Still on Course? Though competition has caused a slide in its stock, the E-mail outsourcer keeps adding new mailboxes and could turn a profit in 2000 By some measures, E-mail is already the No. 1 tool for business communications. Not only are more messages flying through cyberspace but E-mail is getting more complex, with large documents, photos, and even audio and video files attached. This is making E-mail systems harder to administer. Anyone who has been frustrated by a system that routinely loses messages, gets overwhelmed with spam, or succumbs to viruses can understand the potential for a company like Critical Path (CPTH). Critical Path contracts with companies to take over their E-mail administration and also supplies E-mail services to Internet service providers, Web hosting companies, and Internet portals that offer their own brand of E-mail to visitors. Its customers include E*Trade Group (which is also an investor in the company), Network Solutions, MCI WorldCom, British Telecom, and America Online. On July 14 it released the names of four new customers, including Bid.com and Comcast Commercial Online. That day, its stock price rose 2.69 points, or 5.8%, to 49 1/8. HEADING SOUTH. That's still far below Critical Path's lofty heights following its Mar. 29 initial public offering, however. The volatile stock debuted at 24 and then soared to a high of 150 on Apr. 13. Since then, it has been, shall we say, heading south. The decline has nothing to do with what's actually going on at Critical Path, argue the analysts who cover it (all of whom work for firms that helped bring the company public). "The decline really hasn't been warranted by the company's fundamentals," declares Steve Sigmond, an analyst with Dain Rauscher Wessels who rates Critical Path a buy with a price target of 120 a share.
For the year, Critical Path is expected to post nearly $10 million in revenues, up from $900,000 in 1998. Hambrecht & Quist analyst Dan Rimer projects revenues of $44 million in 2000. As is often the case with fast-growing Internet companies, Critical Path is losing more money even as its revenues grow. In 1998 it lost $11.4 million, equal to $2.94 a share. In 1999, Rimer expects it to lose $19 million, or the equivalent of 68 cents a share. But by the third quarter of 2000, it will break even and start turning a profit from there, he predicted in a June 16 report. Critical Path's recent steep slide is likely due to increasing competition in outsourced E-mail as a gaggle of competitors have come public in recent weeks. CommTouch Software (CTCH) started trading on July 13 and climbed eight points, or 50%, on its opening day. Mail.com (MAIL) went public on June 17 and USA.net, which recently delayed its IPO, should come public later this summer. "To the extent that these competitors are out there extolling the virtues of their approach, I think it has some influence on Critical Path," says Steven Appledorn, co-manager of the Munder NetNet Fund (MNNAX), which currently has Critical Path as its only holding in outsourced E-mail. "Investors are trying to understand which companies have the really scalable business models and which are also-rans," says Dain Rauscher's Sigmond.
That business model should also ensure Critical Path's growth as E-mail becomes even more ubiquitous, Rimer believes. He also expects the company's revenues to ramp up as corporate customers, now in the minority, become a larger part of its business. Competition will mean plenty of pricing pressures, but Critical Path can combat this with its plan to offer premium services, says Rimer. Eventually, its E-mail should allow users to integrate voice mail and faxes in E-mail messages, set up appointments via E-mail using electronic calendars, and check when E-mail was delivered to and opened by the recipient. Already, Critical Path has used proceeds from a June secondary offering to acquire three companies that will allow it to add such advanced E-mail features to its service. "It's a very strong way to participate in the emerging digital economy," Appledorn says of Critical Path. Investors should be glad they missed the hype following the company's IPO. But now that a bunch of its competitors are attracting the limelight and its share price has fallen, investors might want to give Critical Path a look. Amey Stone is an associate editor at Business Week Online. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 WEB POINTERS To visit some of the sites mentioned in the story, click here: Critical Path Hambrecht & Quist CommTouch Software Mail.com USA.net | ||||||||||||
