VA Software: Time to Buy?

|
 |  About: SourceForge, Inc. (LNUX)
by: S.H.

VA Software (LNUX), an online media, software, and e-commerce solutions company, is extremely attractive at these levels after declining by more than 34% since February. They own and operate OSTG, Inc., a network of well known Internet technology websites such as Slashdot.com and Sourceforge.net, geared towards IT and software development communities which we all know have been getting increasingly popular.

LNUX reported Q207 diluted earnings on February 22, beating last year's 2nd quarter results by 50.0%. Revenue growth increased 43% yoy as they continue to show an increase in cash advertising sales from their online media websites , and a 43% increase in order shipments during the 2006 holiday season through ThinkGeek.

Revenue estimates:
revenue estimates

Earnings Estimates:
earnings estimates

LNUX sold off after issuing conservative 3Q guidance of expects third-quarter earnings of 1 cent to 3 cents a share, excluding stock-based compensation expense and amortization of intangible assets, and revenue of $12-13M for the quarter. IMO, it is very likely they will report earnings at the high end of previous guidance, and a 34% drop off in the stock is much overdone. A recent strategic decision to 'sell' Sorceforg Enterprise Edition business to former competitor CollabNet in exchange for an equity ownership stake in CollabNet should bode very well for VA Software. VA Software was facing increased competition from CollabNet, and was beginning to lose large projects to in-house solutions. Now LNUX can but more focus on their media websites, and continue to ramp cash advertising sales.

LNUX has a strong balance sheet and profitability with 0 debt, $61M in assets, cash flow margin of +3.1%, and net margin of +25.1%. LNUX reports 3Q07 earnings on May 24th.

llnux.bmp