Chris Fernandez

SoundBite Communications: Cheap Valuation Means It's Time To Buy

Hey AKJ,

Thanks for the feedback and thoughts. I always really appreciate honest and well-thought out counterarguments to my points.

When people disagree with me, even if very slightly, they often have no reasoning or basis that makes sense, so I thank you for your well-researched and knowledgeable response and additions to my thoughts.

A few comments to your points:

1 - The valuation comps were chosen because a) there are NO direct competitors that do what SoundBite does that are public, and b) the companies you mention plus others that I outline in my research report on my website, only have a portion of their revenue derived from AVM solutions, not all of their revenue like SDBT does, c) Varolli withdrew their IPO plans to go public, and if they ever do, I will add them to the comps. list.

So that being said, I thought it prudent to align the company with others in the "customer contact" space like Livepersn, Nuance (which SDBT actually gets some of their technology from), and then CRM to show that because SDBT's revenues are derives all as SaaS, their multiple should more reflect the companies in that space and NOT the companies in Telecommunications spaces, and the like.

2 - The Gross margin decline was expected as a result of higher cost of sales of building out their network, lowering prices to remain cost-competitive and like you mentioned, to hire and train more staff.

The long term Gross margin is likely to remain between 62-65% per SDBT's guidance, and I can live with that, especially with the other margins improving over time.

3 - So far debt collectors account for a large part of SDBT's revenue, and as I stated on my website in my research report, this actually bodes well for SDBT now and in the future as the economy recovers and people start paying their debt.

you are also right as to the long term status of contracts. Although SDBT does not have any long term contracts, once the system proves worthwhile to a client, they are less likely to ever switch to a competitor and are more likely to keep coming back to SDBT for all of their customer contact needs that had nothing to do with their original reason for using SDBT.

4 - Analysts coverage: There are actually 4 analysts covering this stock now, including the 4 that brought SDBT public. They all have strong buys or buy on the stock with price targets pegging SDBT at at least double from where it sits today.

This is a great play for patient investors, and as I mentioned, you'll get at least a double from here on out, and it could happen very quickly with some news announcements, different analyst coverage, etc.

The whole point is to be in the stock NOW not after these events take place.

Thanks again,
Chris

You can read my full research report on SDBT for free here:

peakstocks.com/researc...