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[Nettime-bold] The RagasReport- eBusiness Intelligence Stocks - Slicing and Dicing Data

Knowledge Capital For Next Economy Architects
Editor: Matt Ragas
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In This Issue  
  Commentary: eBusiness Intelligence Stocks - Slicing and Dicing Data
More Knowledge Capital: AOL TW, AT&T, Liberty Media, Microsoft
Quote of the Week: Wall St. Finally "Throws in the Towel" on Exodus

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This Week's Commentary


eBusiness Intelligence Stocks - Slicing and Dicing Data

There are essentially two ways to manage in times of economic uncertainty.

Duck and cover or duck and analyze.

I'm betting that the vast majority of corporations will eventually choose the latter.

In other words, one of the best ways to survive the current economic slowdown may be to invest in business analysis tools that help drive profitability and give corporations a clear real-time view of their existing systems.

Thus, tools that help tie together existing legacy systems will prove to be invaluable- now and well into the future.

That's why I find it likely that corporations - from large to small- will suck it up and continue to invest in an area frequently known as eBusiness Intelligence software.

They really have no other choice.

While companies in this sector have watched their valuations implode along with the rest of software stocks, this is a group poised to rebound strongly as the IT spending environment begins to improve.

In fact, FAC Equities believes that the market for eBusiness Intelligence software is now at less than 10% of full penetration and will grow 40% over the next five years.  That's solid growth to ride.

With this in mind, then, I decided to take a look this week at Business Objects, Hyperion Solutions and Cognos, three of the most well-known eBusiness Intelligence players.

Let's take a closer look under my analytical microscope and see what I found out.

Business Objects [BOBJ]

Founded in 1990, Business Objects has emerged today as arguably the largest business intelligence software provider in the industry.  The company now has more than 13,100 customers in over 80 countries, ranging from technology companies like AT&T [T], Redback Networks [RBAK] and Verizon [VZ] to Old Economy blue chips like Goldman Sachs [GS] and Dresdner Bank.  The company's wildly popular flagship product, BusinessObjects, gives customers a real-time view of key business metrics across their business.

While the current IT spending funk has definitely eaten into the firm's near term growth opportunities, Business Objects is still humming along quite nicely.  For the most recent quarter, sales grew 35% to $98.3 million, while profits jumped 50% to $7 million or 16 cents per share.  Business Objects expects to report sales of $420 to $430 million for the year, which would still represent healthy 20% annual sales growth.  On the earnings front, BOBJ expects 2001 EPS to be in the range of 71 to 75 cents per share.

Valuation wise, Business Objects is clearly a gamble at current levels, but an interesting one at that.  At a recent price of $26, BOBJ checks in with a forward 2001 P/E of roughly 35 with still respectable 10-11% earnings growth projected.  More importantly, EPS is expected to pick up and grow 30% to 94 cents per share for 2002.  If one believes that the worst is already behind software stocks in general (as I do), then now is the time to scoop up BOBJ as it hovers near its 52-week low.

Hyperion Solutions [HYSL]

Much like Business Objects, Hpyerion provides managers with software that helps analyze the disparate data found across the enterprise.  More than 6,000 companies, including 86 of the Fortune 100, currently use the company's technology solutions.  Unlike Business Objects, though, the past year has been quite a bear for the company's employees and shareholders as it struggles to close new sales.  Not surprisingly, then, Hyperion announced plans last month to fire 15% of its staff as part of a broad restructuring effort.

The U.S. "economic slowdown" has clearly been in full effect at Hyperion.  Sales grew only a sluggish 4% to $130 million in the most recent quarter, as software license revenue actually declined from $62 million to $55 million.  Hyperion is definitely in more than just a macro-economic induced rut.  The firm's bottom line also took a big step backwards last quarter, as the company reported a quarterly loss of $1.3 million, compared to profits of $6.6 million last year.

On the plus side, Hyperion still has a sizeable war chest in its possession, having ended last quarter with $222 million in the bank.  With HYSL shares having now declined from a 52-week high of $35 to a recent price of $15.50, roughly half of the stock's capitalization is now backed in cash.  However, with Hyperion expected to report flat sales and negative earnings growth for the year, I have trouble seeing the clear catalysts that will move this stock significantly higher in 2001.

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Cognos [COGN]

Ottawa, Canada based Cognos has also found itself experiencing very Hyperion-like trials and tribulations lately.  The company surprised analysts last month when it announced that at best it would breakeven in its fiscal first quarter, but that an operating loss of $4 million was possible.  Wall St. had been expecting a profit of 4 cents per share.  As part of the news, Cognos also announced that it would fire 300 workers or roughly 10% of its total workforce.

This first quarter earnings warning came only three months after the company issued a profit warning for its fiscal fourth quarter.  Thus, saying that analysts' 2001 earnings and revenue projections look suspect to me right now would be an understatement. This much I do know.  Wall St. has sliced COGN's 2001 EPS estimate from 83 cents to 44 cents in only the past 90 days! Cognos announced Thursday that it now expects to post fiscal 2002 earnings of 43 cents per share.

Trying to find a positive side to COGN right now amidst its earnings warnings and other problems isn't easy right now.  After all, 14 analysts currently all have a HOLD (read- SELL) rating on Cognos! Further, the company reported a first quarter decline in both sales and earnings.  Until I see if Cognos can actually come through the first quarter and meet its numbers - not warn again- then I see no reason to play with COGN. BOBJ is hands down the best play in the space now.

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More Knowledge Capital


AOL BULLISH ON AD MARKET: With fear again running rampant across major sectors of the NASDAQ, ranging from telecom to semiconductors, it was nice to hear some positive comments on the advertising market this week.  Call me the eternal optimist, but there is still light at the end of this tunnel.  Stopped at a conference earlier this week, AOL [AOL] chief Gerald Levin told Reuters that he's "not sure there is an upturn yet" in the ad market but he does believe that "advertising revenues are stabilizing."

While "stabilizing" doesn't directly translate into words like "recovery" or "rebound" it does suggest that at least for the world's largest media company, it believes that the worst of the storm is over.  On the flipside, though, AOL is hardly a purely ad-supported company these days. In fact, the combined AOL-Time Warner only gleans 23% of its total revenue from advertising.  Subscriptions (cable, Internet, print etc) are the real bread and butter of AOL TW. Regardless, let's hope that Levin is right.

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Buy It Here!

MEDIA MOGUL CRANKS UP DEALMAKING: Media tycoon John Malone is definitely back in the deal-making saddle where he belongs.  His investment company, Liberty Media [LMGA], announced Thursday that it would buy six German cable TV operations from Deutsche Telekom for what is believed to be $4.69 billion.  Liberty had previously announced plans earlier this year to acquire only a 55% stake in the six cable systems. This revised deal clearly opens the door for Malone to combine these new assets with his controlling stake in European cable operator UnitedGlobalCom [UCOMA] at a later date.

In related news, AT&T set the official date of the spin-off of Liberty Media into an independent entity for August 10th.   Liberty currently trades as a tracking stock of Ma Bell, through AT&T's 1999 acquisition of Malone's TCI cable empire.  Now looks like as good a time as ever to pounce on LMGA's battered shares.  Interest in this stock is clearly set to heat up in the coming months as rumors are now swirling that Malone may even be considering making a run at a takeover of AT&T [T].  Sounds crazy to me, but with potential backing from Comcast [CCZ] and Microsoft [MSFT], who knows.

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Quote of the Week

``You can only pull the wool over the eyes of Wall Streeters so many times before they throw in the towel on you. Investors have given up on Exodus. It's obviously not funded to last beyond this year.''

-- Comments made this week by Jefferies & Co. analyst Fred Moran after Web hoster Exodus Communication announced a major earnings warning.

June 22, 2001














































































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About Matthew W. Ragas: Ragas is President and Chief Analyst of Matthew Ragas & Associates, an Orlando, FL based strategic advisory and venture development firm. He was previously the founding editor of Raging Bull and is the author of the new e-business book Lessons From the E-Front from Prima Publishing.

The RagasReport and Matthew Ragas and Associates, are not a registered Investment Adviser or a Broker/Dealer. Readers are advised that the report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The opinions and analyses included herein are based from sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied is made as to their accuracy, completeness or correctness. Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report should be independently verified with the companies mentioned. In addition, we receive no compensation of any kind from any companies that we mention in this report.

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