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VA Software is an IT company based in the San Francisco Bay Area that develops and sells a software application called "SourceForge Enterprise Edition". SourceForge Enterprise Edition provides a collaborative development environment for projects that have distributed development teams. The importance of such a product in this age of globalization and outsourcing is obvious and VA Software currently counts Eli Lilly, Agilent, Acxiom and Timex amongst its customers.

But the most interesting part of VA Software is the multitude of web properties and E-commerce websites it owns. The crown jewel amongst these web properties is Slashdot.org, which could be considered a virtual geek Mecca. After you filter out all the noise, Slashdot can often provide outstanding information about technology and computer security.

Slashdot has seen quite a jump in its website traffic over the last few months and is listed as the most popular blog on many blog tracking websites such as Syndic8. With an increasing shift of advertising dollars from traditional marketing mediums like radio and TV to the Internet, Slashdot clearly stands to benefit from this increased traffic and popularity. This was reflected in the latest quarterly results with online media revenues increasing 40% and E-commerce revenues increasing 33% year-over-year.

VA Software recently sold off its "Animation Factory" subsidiary for $9.35 million in cash to Jupitermedia Corp. This was an excellent move by management, as the Animation Factory business does not fit in well with the rest of the company and only generated $580,000 in revenue during the latest quarter.

VA Software is currently not profitable but over the last three years it has done an impressive job of reducing its cash burn rate down to $4.69 million per year. After recognizing revenue of $1 million in November from the sale of its SourceForge Enterprise Edition to a single customer, VA Software is on track to show a profit when it reports results after close of market on February 21. With $33.7 million in cash and short-term investments on the balance sheet and no debt, the balance sheet is also very strong.

This is a "sleeper stock" with a lot of potential if it were to become consistently profitable or if Wall Street realizes the true value of Slashdot. It should be noted that VA Software currently trades at a low $1.83 per share. This low price combined with a three-month average daily volume of 271,367 could make it susceptible to wild price swings.

Groove Networks is a direct competitor for VA Software's SourceForge Enterprise Edition product. CNet and Slashdot are competing for very similar advertising dollars. With Microsoft's acquisition of Groove Networks in 2005 and widespread speculation that CNet is looking for a suitor, there is a possibility that Slashdot could also get acquired in the future.

The Good:

* Excellent growth potential for VA Software's SourceForge Enterprise Edition product.
* Increasing traffic and revenue from Slashdot and other E-commerce websites.
* Expected to reach profitability when it reports results in February 2006.
* A strong balance sheet with no debt and $33.7 million in cash and short-term investments.

The Bad:

* VA Software currently trades at a low price and is considered by some a "penny stock" -- which deters investment.
* If the price of the stock were to drop below $1 for 30 continuous days, VA Software will be issued with a delisting notice by Nasdaq.
* With the recent explosion in blogging (I am guilty as well), there is lot of content out there competing with Slashdot for advertising dollars.

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