Deal Flow

Inside the world of M&A, IPOs, and Venture Capital

Justin Hibbard
BUSINESS DIRECTORY
Find local experts in:

« Rev Me Up | Main | KPCB's Komisar on Newspapers »

April 13, 2006

Big questions for a hot deal

Tim Mullaney

For probably more than a year, I've been hearing that when Omniture (OMTI) came out, it would be a hot deal. Little wonder: The Orem, Utah company makes what tech wonks call Web site optimization software: It tracks billions of page views a day to help e-commerce companies understand what makes people press the buy button most effectively. Want to know which of your ad campaigns is working? Need to understand what badly-designed features of a Web store are making shoppers abandon that shopping cart? Well, then you might use Omniture software. And if you did, you'd have company like EBay, Expedia, America Online and others.

But....

I want to know is why Omniture is losing so much money. I want to know why, in fact, losses are expanding -- a lot -- when Omniture's direct rival Websidestory is making money. How can this happen -- especially when Omnniture is about 10% bigger, measured by 2005 sales?

On some level, the answers are right in the S-1 filing Omniture made with the Securities and Exchange Commission on April 4. Omniture lost $17 million in 2005 on sales of $42.8 million. In 2004, the loss was just $1.3 million on $20.6 million in sales. Now, there's no question Omniture did this on purpose: The company had a huge spike in marketing expenses (which went from $9 million to $24 million), R&D ($2 million to $6.6 million) and a $2.6 million litigation settlement to resolve a patent challenge. They are placing some bets on growth.

But...

* Is the growth really there? What does Omniture know that Websidestory doesn't? WSSI is only guiding analysts to expect $15 million in quarterly revenue in the first nine months of this year. At about $40 million in sales, WSSI spent $15 million on sales and marketing and about $4 million on R&D last year. How can Omniture make enough to pay for all the hiring it's doing, when its closest rival isn't spending nearly as much on basically the same amount of revenue? And since Omniture already has 900 customers and they include names that do a hefty percentage of U.S. e-commerce, yet produced $43 million in sales last year, how big is its market really?

* Are its new products going to work out? Judging from the filings, the heart of Omniture's story is that it's expanding from Web site optimization into new products such as data warehousing services. But 96% of revenues come from the core offering. If Omniture has hard evidence that it's more than a one-trick pony, I'm all ears. But it's not in the S-1. Will it come out in the roadshow?

All this means that Omniture looks, until we know more, like an overpriced version of Websidestory. And that's not what the buzz machine has been selling it as. WSSI has done well, rising more than 80% since its 2004 IPO. But that IPO was priced very conservatively, coming out of some second-tier investment banks. Omniture's deal is from the big Wall Street Power Banks, which raises the hype meter and the buzz factor. You have to assume they all hope the big bank roster and glittering client names will also raise the deal's price. But unless Omniuture has a clear plan for how it's going to grow into the budget it has already begun spending, watch your step.

Now, I am open to changing my mind here. One of my favorite e-commerce CEOs, EBags Inc.'s Jon Nordmark, is an Omniture customer who has been talking them up to me forever. He has cred here. It's a Morgan Stanley and Credit Suisse-led IPO, which still means something. And since the company's not supposed to talk much about the deal in public before the offering, thanks to SEC regulations that securities lawyers routinely interpret too conservatively, I haven't asked Omniture for comment. But can the blogosphere answer some of these questions for them? We'd love to host that discussion.

01:33 PM

IPOs

Trackback Pings

TrackBack URL for this entry:
http://blogs.businessweek.com/mt/mt-tb.cgi/

Listed below are links to weblogs that reference Big questions for a hot deal:

» Some thoughts about Omniture’s IPO II (+ top WA players’ strategy) from WebAnalytics.be Blog
Some weeks ago I posted a quick comment on Omniture going public. I didn’t expect that little post to be so popular. It has become one of our top 5 posts more visited and recently a happy customer of Omniture (my supposing is based on the fact th... [Read More]

Tracked on May 27, 2006 03:26 PM

Comments

This one, Omniture, puzzles me too, on a few fronts. They are raising $120 million to pay off a $4 million fee? Their losses increased to $17 million? Really curious as to what that $17 million includes.

Then, $24 million on marketing? Don't they just sell software / asp type products, b-2-b style? Is the $24 million spent on sponsorships? Ads in the NYTs? That is a TON of cash.

The wild card in this could be Google Analytics, too. That product is free, right? What does Omniture do that Google Analytics doesn't? What are the switching costs for e-tailers and publishers already using Omniture?

Posted by: Jostins at April 13, 2006 03:33 PM

This one, Omniture, puzzles me too, on a few fronts. They are raising $120 million to pay off a $4 million fee? Their losses increased to $17 million? Really curious as to what that $17 million includes.

Then, $24 million on marketing? Don't they just sell software / asp type products, b-2-b style? Is the $24 million spent on sponsorships? Ads in the NYTs? That is a TON of cash.

The wild card in this could be Google Analytics, too. That product is free, right? What does Omniture do that Google Analytics doesn't? What are the switching costs for e-tailers and publishers already using Omniture?

Posted by: Jostins at April 13, 2006 03:35 PM

Post a comment






 


Copyright 2000-2009, Bloomberg L.P.
Terms of Use   Privacy Notice