Why are Insiders Selling Omniture?

| About: OMNITURE, INC. (OMTR)

Why, in less than a month, have insiders sold directly over 1.5M shares of Omniture (OMTR) and indirectly divested another 1M shares, equivalent to 9.6% of the float? Obviously, management knows that a new formidable competitor is about to take a stand. The real question is why now? Why not three months ago or in three months from now?

Perhaps the answer can be found from the information being disseminated by Omniture. First though, some facts:

Heavy Insider Selling

From 2/20/2007 through 3/08/2007, insiders sold 1,116,282 shares between $14.96 and $17.04. We wrote about this and lo and behold insiders deviously switched tactics. Not only has the selling continued it actually increased in pace. A whopping 456,299 shares were sold by insiders between a week ago Friday and last Thursday. This brings the total dump to 1,572,581 shares in less than a month! As for tactics; insiders are not selling direct. All insider sales since 03/09/2007 have been indirect so as not to put any downward pressure on the stock price. This is a phenomenal amount of concentrated insider selling that has been noticed by the street yet the 'ratings game' has called for an upgrade! Makes one wonder whose back the insiders are scratching.

In addition to the above there have been non open market acquisitions and dispositions. Take Director Mark Gorenberg for example. In the past month, non open market acquisitions amounted to 574,145 shares. Non open market dispositions totaled 1,613,435 shares for a net escape of 1,039,290 shares. Put the two figures together and you get 2,611,871 shares which is 9.6% of the float, unloaded by insiders.

Earnings

2006 trailing earnings and 2007 forward figures, as provided by Omniture, are as follows;

Full Year FY 2007: Revenue for the company’s full year 2007 is expected to be in the range of $128 million to $130 million. GAAP net loss is expected to be in the range of $0.15 to $0.13 per diluted share. Excluding the effect of stock-based compensation expense, the amortization of certain intangible assets, imputed interest expense and non-recurring acquisition related expenses, non-GAAP net income for the year is expected to be in the range of $0.07 to $0.09 per diluted share. Omniture expects to record positive adjusted EBITDA in the range of $16 million to $18 million.

Note that the GAAP loss projected for 2007 by the company is $0.13 and non-Gaap, meaning excluding primarily stock option compensation expense is $0.09 profit. OMTR doesn't expect to post a profit in 2007. Frankly, OMTR won't post a profit in 2008 as well.

"May the (Sales) Force Be With You"

OMTR has come out with a 'new' ingenious way of reducing its selling expense - charge salesmen. Until now training and certifying programmers to install their software was carried out through the conventional method of company sponsored training seminars. Now OMTR wants programmers to pay OMTR for this training! WOW - an Omniture certificate that allows me to sell their software! On the surface this looks more like an act out of despair; an awkward attempt to reduce costs and generate a profit. This has been tried before by several companies that are no longer with us - may they rest in peace.

Analysts Reduce Earnings Estimates, Again

We are not concerned with the options based compensation for Officers and Directors as this is within the norm.

Out of the 12 analysts covering OMTR, all have reduced 2007 EPS estimates by at least 50% over the past 3 months. Since the IPO in June 2006 at $6.50, OMTR has not reported a profit. True to say that revenue has increased handsomely yet margins are pretty much where they were six months ago. Now analysts are looking for a paltry profit in the second half of 2007. Notice how the time frame is constantly being pushed forward.

We doubt if OMTR will ever be capable of producing earnings of a dollar per share due to its business model. High sales expense and quality yet costly human follow-up services erode margins. For a software company you would think that after the initial sale everything is automatically taken care of by computers. This is not the case. The information provided by the software has to be correlated and deciphered by someone- a salaried living being.

Projected revenue growth over the next five years is 37% though this is a guestimate at best. Even if revenue growth was 75% over the next 5 years, as they say down-under, the profits would slip slimy away. This is NOT a Microsoft type of software where you install and go. Constant support, updating and fine tuning is needed.

Get Ready For Google

The sell and good-bye version is being developed by Google (NASDAQ:GOOG). Google has already begun to test the Google analytics software. Google can and will give OMTR a run for its money in this area. The Japanese management technique known as Kaizen is well known and is not proprietary to Omniture. Antagonists that are quick to point out that Google has not been able to successfully diversify from its search platform forget that web analytics is the basis for search. A natural extension is to compete head-on with Omniture, Webtrends, Websidestory and Coremetrics. Omniture employs about 330 people in the U.S. and Google should have no problem fielding double that amount when it is ready to offer the full service package.

To quell any rumors; Google is not interested in purchasing OMTR as it has its own in-house technical capabilities and patents. Google does not wish to pay patent royalties or engage in unnecessary litigation, which is the case with the OMTR technology. Google has enough litigation issues on its plate with YouTube. Besides, if an acquisition was on the horizon, insiders wouldn't be selling.

So "why now" you ask? Beats me, ask Google.

Disclosure: Originally a personal opinion of a CrossProfit analyst - now the consensus at CrossProfit.com. CrossProfit will most likely short for clients on Monday 03/19/2007 but will not chase down below $12.00.

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