|
|
|
Thursday, January 22, 1998
IntelliQuest Information Group, Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IQST)") else Response.Write("(Nasdaq: IQST)") end if %>
Phone: 512-329-0808
Website: http://www.intelliquest.com
Price (1/21/98): $8 7/8
HOW DID IT FIND TROUBLE?
As technology companies have moved toward a consumer-oriented branding strategy, marketing has become increasingly important. IntelliQuest Information has been one of several national outfits that has stepped up to the plate with survey data that helps the Microsofts of the world know who their customers are and how to attract and keep them.
Business had been booming. Nine-month results reported October 22 showed revenues up 43% to $27.5 million. The key continuing service revenue from recurring subscription products rose 53%. Net income more than doubled, leading to a 77% boost in EPS to $0.32 despite more shares outstanding due to its February acquisition of Internet research outfit Zona Research.
Yet investors gave up the quest on January 16 when the firm pre-announced fourth quarter troubles. Several contract projects fell out of the quarter, while at the same time, IntelliQuest was beefing up its operations to meet long-term goals. The result was a profit squeeze.
The company now expects fourth quarter sales will come in between $8.6 and $9.1 million versus $9.1 million in 1996. That will crush EPS to $0.04 to $0.06, badly missing the $0.17 estimates. That also excludes a one-time restructuring charge of $1.6 million. On the day of the pre-announcement, the stock market's survey data showed IntelliQuest down $4 a share to $9 1/4, after falling all the way to $6 3/4 intraday.
BUSINESS DESCRIPTION
IntelliQuest is a leading provider of data, analysis, and software applications designed to improve the marketing performance of technology companies.
Its IntelliTrack IQ product is a collection of fifteen modules covering various technologies, customer segments, and geographic markets. Its Computer Industry Media Study (CIMS) is an annual study of readership and viewership habits of the folks who influence technology purchases. The Zona Research unit uses quantitative data to help companies develop Internet-related marketing strategies.
About 86% of revenue comes from such recurring tracking studies and customer management products, which enjoy 85% renewal rates. The rest comes from contract research projects.
Companies use IntelliQuest's data to track product performance and customer satisfaction, measure advertising effectiveness, assess brand strength, and so on. Its more than 160 customers include giants such as 3Com, Apple Computer, AT&T, Dell Computer, Texas Instruments, and Dow Jones. In 1996, Microsoft accounted for 19% of sales while IBM made up 11%.
Investors have been hot and cold on the sector, with competitors Gartner Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GART)") else Response.Write("(Nasdaq: GART)") end if %>, Meta Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: META)") else Response.Write("(Nasdaq: META)") end if %>, and Forrester Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORR)") else Response.Write("(Nasdaq: FORR)") end if %> turning in a mixed performance of late. Insiders own 14.5% of the company.
FINANCIAL FACTS
Income Statement*
12-month sales: $36.7 million
12-month income: $3.9 million
12-month EPS: $0.47
Profit Margin: 10.6%
Market Cap: $76.2 million
(*Pro forma to include Zona acquisition.)
Balance Sheet
Cash & Securities: $50.9 million
Current Assets: $62.6 million
Current Liabilities: $7.1 million
Long-term Debt: $0.1 million
Ratios
Price-to-earnings: 18.9
Price-to-sales: 2.1
HOW COULD YOU HAVE SEEN IT COMING?
Despite the revenue visibility provided by its subscription services, the company had said it would restructure its operations, increasing spending to improve its products and sales. Any fall-off in other revenues meant the company might see a margin squeeze.
In fact, revenue from project-oriented services had already dipped by 13% in the third quarter. Some clients were finding what they needed among the more cost-effective subscription products. Moreover, overall sales growth had slowed in the third quarter to 31% while growth in continuing service revenue fell to 38%.
Even so, at around $15 a share in October, IntelliQuest traded at 30 times FY97 earnings estimates. That wasn't crazy given projections of 38% earnings growth through at least 1998.
WHERE TO FROM HERE?
IntelliQuest expects FY97 revenues to come in around $36.1 to $36.6 million, up 27% to 29% versus 1996. Excluding a $0.13 per share charge, EPS will be $0.37 to $0.39, missing analysts' estimates of $0.46.
Given the fourth quarter troubles, FY98 estimates of $0.60 likely will be cut in the weeks ahead. If the company is spending more on selling, general and administrative expenses, revenues will need to be higher next year just to match FY97 earnings. The real question is whether the revenue crunch will prove to be a one-time blip or part of a trend.
If it's a temporary problem, then a PE of 24 and price-to-sales ratio of 2.1 (based on FY97 projections) may not be pricey given that IntelliQuest has been delivering double-digit net margins. Plus it has nearly $6 a share in cash. The company's board has already expressed its confidence, authorizing a buyback of 850,000 shares or about 10% of the stock. This one appears to merit further research.
-- Louis Corrigan
([email protected])
Check out the Daily Trouble Message Board!
|