Omniture Has Growing Pains, But Weathers Economic Storm

Feb. 7.09 | About: OMNITURE, INC. (OMTR)

Web traffic optimization and analytics company Omniture (OMTR) delivered a solid fourth quarter, but did highlight a few growing pains including “some rare latency issues” due to an upgrade and customers that are struggling amid a weak economy.

Omniture’s software–SiteCatalyst is the best known–is delivered as a service and is designed to optimize online advertising and marketing. I’m most familiar with SiteCatalyst as a user and give it high marks. Omniture also has a bevy of other services.

For many stock watchers, Omniture has been pegged as one of the companies to watch in 2009 since it is linked to delivering better returns for customers.

The company reported Thursday fourth quarter revenue of $83 million, up from $43.1 million a year ago. Excluding items, Omniture reported earnings of $9.2 million, or 12 cents a share. That tally missed estimates by a penny. Net loss was $8.1 million, or 11 cents a share.

The outlook also fell short. The company projected first quarter revenue between $86 million and $88 million with earnings excluding charges of 11 cents a share to 12 cents a share. Wall Street was expecting earnings of 13 cents a share on revenue of $88.5 million.

On Friday, Wall Street was happy to give Omniture a pass as shares surged more than 15 percent.

Although Omniture has a potentially lucrative partnership with ad giant WPP and is moving upstream away from analytics–specifically Google Analytics–there are a few worries.

On a conference call, CEO Joshua James highlighted some latency problems with its service.

“We’ve unfortunately had some rare latency issues affecting a minority of our customers caused by the installation of a SiteCatalyst upgrade that was rolled out on Jan. 5. It’s important to note the issue affected reporting performance only and there was no outage of data collection.

But there was a backlog of data processing, so some of our customers’ data was behind and this caused an inconvenience for our customers for which we are certainly disappointed. No data was lost or compromised but that said all of us at Omniture of course took this incident very seriously, as the real time nature of our products is one of the hallmarks of our business and something our customers have come to expect from us.

Besides fixing the technical problem, which is behind us now, we are using the situation as an opportunity to improve our internal processes and procedures and importantly to improve our communications with customers which we will roll out over the next few months.”

You can chalk that up to growing pains given that problems like these appear as SaaS players grow up. More worrisome is the economy:

James said:

Some of our customers are being forced to reduce their workforces or even to declare bankruptcy in some cases. Those situations are very unfortunate for those individuals and their families, and of course that impacts our business. We saw pressure on customer retention particularly with our smaller customers as they’re more likely to go out of business or to leave the internal resources to leverage the data and optimization services we provide.

Additionally, many companies facing lower consumer spending have scaled back their overall marketing spend in an effort to maintain ROI of their marketing investments. We believe this is manifest in their use of our products several different ways, including the following. We’re seeing customers delay some new projects, particularly in certain industries. Activity based revenue has been flat or in some areas declining, a fact that impacted over usage and ad spend based search center revenue throughout 2008.

And we’ve also seen some contract reductions, where customers are requesting reduction in commitment levels on renewal dates, which is generally caused by less traffic to their site or smaller budgets. It appears to be most prevalent in our mid-market segment.

That said, there is some bright side. Enterprise spending on Omniture’s products remains strong as large companies look to optimize their Web efforts.

Overall, Omniture presented a mixed bag, but the company is growing and weathering the economic storm.