InformationWeek

May 8, 2000

Taking $tock:
BroadVision Survives And Thrives
The E-business infrastructure vendor reported good first-quarter earnings and is expanding its product line

By William Schaff

William Schaff t's quarterly report time again, and as most of my readers know, I usually go into hibernation to try to keep up with earnings reports and analysts' calls. Despite the roller-coaster market, the news is generally good; even some swooning Internet stocks have shown muscle.

One Net company that stands out is BroadVision Inc. (BVSN--Nasdaq), a leader in E-business infrastructure applications. The company's One-To-One Enterprise application series provides the foundation for many large companies' business-to-consumer and business-to-business Web sites. And with its acquisition last month of Interleaf, a content-and document-management vendor, the company has expanded into E-business content management. BroadVision's apps traditionally have done well in finance, communications, retail, and technology manufacturing, and they are starting to make inroads into energy, health-care, media, entertainment, and government.

BroadVision has a blue-chip clientele, including American Airlines, BT, Home Depot, Motorola, Nortel Networks, Sears, the U.S. Postal Service, Wal-Mart, and Xerox. The IT managers at these companies tend to be both rigorous and skeptical in analyzing and implementing new technologies, and their acceptance of BroadVision's technology says a lot.

The Interleaf acquisition has let BroadVision keep pace with competitors such as Vignette Corp. (VIGN--Nasdaq) by broadening its line with new products such as Extensible Markup Language-based content-management tools and the usual overhyped wireless apps. The company is also offering One-To-One Billing for personalized bill-presentment and bill-payment applications.

The company received a boost by settling its 2-year-old patent-infringement suit against Art Technology Group. BroadVision received $8 million up front, with another $7 million to be paid during the next three years.

Last but not least, BroadVision's fundamentals have gotten stronger. At the close of the first quarter, ended March 31, the company had 648 enterprise customers, 110 more than last quarter. More important, repeat customers made up half of its total business during the quarter. The initial price of its E-business applications software stayed around $200,000, but the average lifetime selling price, excluding maintenance, rose 5% this quarter to $405,000 from $385,000.

BroadVision's strong alliances with consultants and system integrators such as EDS, KPMG, and PricewaterhouseCoopers help fuel its growing indirect channel sales. The company says more than 75% of its first-quarter revenue was generated through sales by alliance partners. International sales accounted for 23% of total sales.

In the first quarter, BroadVision generated revenue of $61.5 million, up 41% from $43.7 million in the previous quarter and a jump of 233% year over year. License revenue hit $40.7 million, or 66% of the top line; services made up the balance. License gross margins were 95% and service gross margins were 25%, for a combined gross margin of 71.2%. This was a slight setback from a gross margin of 36% in the previous quarter, resulting in a decline in overall gross margin from 74.3% last quarter and 78% last year. The primary reason was a fast ramp-up in hiring to keep up with demand. The company's revenue mix will have to be watched as services grow to a higher percentage of total revenue.

BroadVision's earnings per share, excluding acquisition amortization costs, came in at 4 cents, topping the consensus estimate of 2 cents; it's always encouraging to see a tech company make a profit. Days sales outstanding, a good indication of working capital management, was an impressive 56 days, and cash sits at $370 million. At the current rate of growth, revenue this year should surpass $310 million. My 2000 earnings-per-share estimate of 11 cents is probably too conservative--I'll likely adjust these numbers upward throughout the year, along with others on Wall Street.

But before you run out and buy the stock, which has come down to $47.25 from its 52-week high of $93.28, remember that it trades at 550 times year 2000 earnings per share--or, for more conservative investors, 34 times year 2000 revenue. Keep an eye out for BroadVision, though--it not only looks like a survivor, but I expect it to continue to outperform its competitors.

William Schaff is chief investment officer at Bay Isle Financial Corp., which manages the InformationWeek 100 Stock Index. Reach him at bschaff@bayisle.com.

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