The Long Case For Omniture

I like the potential growth story with Omniture (OMTR). OMTR provides online business optimization software, and continues to win lucrative contracts. I am also interested in OMTR because it is one of those little stocks that is often quickly reviewed and then tossed aside because it doesn't look that great on paper (Net Income has been abysmal).

However, I think accelerating revenue growth is a more important metric in this case as OMTR is relatively newer in its lifecycle. Plus, the entire industry has been very hot. For example, DoubleClick was acquired by Google, aQuantitative was acquired by Microsoft, and ValueClick's price jumps every time a new buyout rumor surfaces.

Another thing I like about OMTR is that it diversifies the investment strategy within my portfolio. The majority of the names in my portfolio have passed an initial screen based on multi-factor screening model. The problem with the model is that every once in a while it can fail.

For example, my screening model uses many of the same general screening factors as many of the big quant funds, and when quant funds are forced to liquidate (like they were last August due to the credit crunch) my portfolio takes a hit.

More specifically, Goldman Sachs Global Alpha fund screens on book-to-market, small market cap, and T-12 to T-1 price momentum (at least this is what I'm told by people close to the fund), and LSV's $80 billion AUM is selected largely on book-to-market, small market cap, and recent share repurchases, and since I screen on many of these factors I can take a hit if and when those big boys are forced to liquidate large portions of their holdings.

Anyway, I'm up about 6% since I bought OMTR, and I like the potential for a lot more growth.

Disclosure: Long OMTR

Comments

[CrossProfit]

You may have gotten in at the high end of a Ponzi scheme (en.wikipedia.org/wiki/...). At $1.9 billion market cap on $140 million in revenue with zero profits (only larger losses), coupled with the exhaustion of funds raised from the initial public offering to acquire additional companies to enhance revenue growth, this is way too rich for our blood.

In contrast with DoubleClick, ValueClick and aQuantitative, OMTR has not demonstrated that it can grow revenue organically above the 20% threshold. Like you said, this is a hot market for web analytics and if you can't get your act together under current conditions (organic growth + profits) then what's next? The Disney deal is going to take front stage at the next earnings call which will represent a major part of revenue growth. The problem is, once again, that this deal most likely will increase losses. We won't even go into analyzing the profit potential as DoubleClick has a totally different business structure.

Good luck and you can see our opinion in this article: www.crossprofit.com/ar...
Just hope that we are wrong and that it doesn't drop 50% overnight.

CrossProfit (IL) - no current position.

[CrossProfit]

The way OMTR traded today, there is something big going on. There is no-way, based on the fundamentals, that a million shares trade hands between +4% to +7% for the 5th time in less than a month.

Either someone knows something or someone smells that something is going on. One thing for certain is that this doesn't just happen on its own. This roller-coaster with upward momentum is reminiscent of AMZN before the big jump. We may have to wait for earnings though somehow one tends to think that a big, super big new account has been landed. It must dwarf the Disney account.

This is pure speculation as we have no info.
Once again, good luck.

[mark.d.hines]

CrossProfit- Thanks for your comments, and I checked out the article on your site, so thanks for that too. I agree the fundamentals aren't ideal, but I can say this... my uber-smart algorithm friend who has done a lot of work in the industry has demonstrated some serious interest in OMTR. I quickly passed on the stock the first time I reviewed it a few months ago, but the more I think about it, the more I like the growth potential. I’m up over 20% since I bought last week, but that doesn’t mean I won’t be keeping a very close eye on OMTR. Best, Mark Hines, VesTopia.