One of the beautiful things about investing is to try and discover what a founder and chairman’s motivation is to succeed. Sure, everybody wants to make money, but for some people it’s actually something that’s more important than money (really!).
A Brief History
Take the co-founder and chairman of Opsware (OPSW), Marc Andreessen (pictured below). Here is a guy who is in his late 30s but has already lived through a couple of careers. You may remember him as the kinderwunder on the cover of Time Magazine back in the early 1990s. Marc basically invented the Mosaic browser, an early advent of the Internet browser. He was a shy, long-haired kid at the University of Illinois when he accomplished this back in the late 1980’s. I think he missed a few frat parties to better mankind.
Marc went on to co-found Netscape and watched the initial public offering process, became a very rich young man and had the media wonder what he put in his Wheaties. Marc worked hard at Netscape: he was relevant. Netscape was subsequently purchased by AOL and Marc was knighted with the title of Chief Technical Officer [CTO]. At the end of the day, he was stuffed into a corner office and rendered irrelevant: wealthy, but irrelevant
Frustrated, Marc left AOL and went on to co-found Loudcloud, and then for a number of reasons (too many to mention here), Loudcloud became Opsware. Marc was the chairman and goodwill ambassador to the technology buyers of Opsware's product. He mission for relevancy was back on track.
The Road to a Comeback
Opsware is a software-based suite of products that automate many of the maintenance and upgrading aspects of huge groups of servers. Huge corporations and governments are run by thousands of servers. The usual way to upgrade or maintain them is through good old fashion manual labor. The labor costs for servers can be the highest expense items for companies when it comes to the IT budget. It must be accurate, fail proof and secure.
Opsware allows a customer to do just about anything to their “server farms” with the touch of a button. (Okay, not that simple, but you get the point.) The savings to large customers can be measured in the tens of millions of dollars. The typical Opsware sale is large and the sale-cycle can be long because of the size of the transaction. It usually goes up the decision chain to the CFO level. Opsware charges its customers on a per server, per year basis.
Opsware has seeded over 400 major customers, and the early, large reference account, EDS, stands by the statement that Opsware technology saves the company over $100 million per year. Nice testimonial if you can get it.
Last year, Cisco Systems jumped on board in two capacities: (1) as a customer, and (2) as a distribution partner, and reseller. That partnership is beginning to pay fruitful dividends. What motivated Cisco was Ospsware’s 2004 purchase of a small, private company named Rendition Networks. Rendition has the complimentary software to “automate” the networking equipment that Cisco so dominates the world with.
With the server and networking product in tow, Opsware is generating some serious revenues. The sales cycle is actually contracting as the "missionary sale" days are behind them. The January 2008 fiscal year estimates are for revenues of $144 million and EPS of $.12 followed by fiscal year January 2009 estimates of $195 million and EPS of $.28. The company has passed the early adopter stage and is now truly entering the broad relevancy stage.
How Big Can it Become?
At a market capitalization of $1 billion, Opsware has the monster opportunity to become a 5-10 bagger from here. Why, you ask? Automation of IT assets is critical to a company’s existence. With Opsware's recurring-revenue model, customers are willing to sign long- term, 3 year+ contracts. Opsware becomes the drug of choice by IT managers as the programs are 100% reliable and accurate.
Opsware took the early approach of selling to the whole enterprise, which is long and laborious. Decisions could take months and even years. Opsware developed a set of “Opsware lite” product modules that companies could implement on a departmental level first, before whole enterprise decisions needed to be made. Also, with a departmental approach, the costs could be defrayed or better planned for over time—music to a CFO’s ears.
Opsware has helped Marc Andreessen reclaim his rightful position in the technology “guru” circles. Opsware has a real chance to be bigger than BEA Systems (BEAS) in its hey day, and could actually rival Oracle (NASDAQ:ORCL) in the decade to come on total revenues and earnings power.
This gem looks like it wants to break out of this $10 trading level and get to teenager status. Daily traded volume has accelerated recently and the most recent quarter was in-line to a bit better than expected. Opsware recognizes its revenues over the life of the original customer contract, thus providing enormous visibility into future quarters. As an example, Opsware began fiscal year 2008 with over 70% of its guided revenues totally visible. Investors: that is a great feature to have in any stock is that kind of visibility.
Marc Andreessen has a lot of personal wealth from his Netscape sale, but what he has rebuilt is the relevance he has yearned for the last decade. I like that kind of motivation…
OPSW 1-yr chart