ActivIdentity Driving Ahead to Profitability

We just had a chance to listen to ActivIdentity's (ACTI) latest conference call. All in all, we are impressed with the company's focus on minimizing cash burn, and driving the business to profitability via continued costs cuts and new revenue generating initiatives. Management is forecasting decent revenue growth next quarter and expects to reach cash-flow positive by early next year. The company seemingly has excellent opportunities in the government sector as Federal Government departments and agencies look to achieve HSPD-12 compliance later this year.

If ActivIdentity can execute on its revenue growth and cost-cutting initiatives, the company will, as per management's guidance, turn a profit in 2007. We think, as noted in the past, that if these forecasts prove accurate, that the stock can trade at 2.5X to 3X revenue, a still substantial discount to the valuation accorded to RSA (a competitor to ACTI) in the recent EMC (EMC) acquisition. Assuming a $60 million revenue run rate in 2007, and $135 million in cash (no debt), that implies a price target for ACTI of between $6.25 and and $7 per share over the next 12 months.

ACTI 1-yr Chart

Please Note: We first recommended ActivIdentity (ACTI) at $4.37, and still hold a position in the stock. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.