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WebSideStory (WSSI), a leading provider of on-demand digital marketing applications, will report earnings before the open today. We're still familiarizing ourselves with the company, but here's a brief look at what we've dug up thus far.

Overview: WSSI provides on-demand web analytics solutions for over 1,100 customers in the US. These web analytics solutions enable organizations to understand how Internet users respond to website design and content, online marketing campaigns and e-commerce offerings. We think that WebSide's web site tracking services compliment the boom in industry white papers and reports on Internet trends. WSSI's top line is on steroids: sales jumped nearly 100% to $40M in 2005. Last week, the firm's key product, HBX Analytics, won a major industry award for its excellent reporting, e-commerce capabilities, technical support and project management. Just a week before that, WSSI unveiled Search 4.0, the first site search solution to integrate site search and behavioral data. So far, we like what we see. On a pullback, we'd definitely like to get to know the stock better.

Risks and Valuation: Analysts expect a 35% jump in earnings from 2006 to 2007. Right now, shares are going for less than that -- 22 x 2007 numbers. Given the intense competition in the Web analytics space (there are several smaller, private players on the field), we understand investor's concerns. However, we must note that that WSSI weathered the tech bubble burst better than most (ahem, it survived) and the company is coughing up 25% gross margins, a debt free balance sheet, and heavy insider ownership. Most importantly, WSSI's rivals have less access to capital. Two things to watch out for: several directors dumped stock in late January and there are currently less than 7M shares in the float. In other words, we'd refrain from putting WSSI in your kid's 529 plan.

The Bottom Line: The market for e-commerce performance gauging is still in its nascency. Google's astronomical rise and penetration into the global household means that companies are more and more interested in pin-pointing the efficacy of online marketing campaigns. WSSI is well positioned to woo new customers and better yet, attract attention from larger players looking to capitalize on (translation: acquire) WSSI's niche. WSSI shareholders already enjoyed a 45% gain in 2005. Don't fret -- we believe this success story is just beginning.

Source: WebSideStory: A Promising Business Narrative? (WSSI)