Jason Jones: Google launched its latest version of Google Analytics yesterday, so it's time to revisit the web analytics space, a category seeing tremendous growth as web sites get more sophisticated. Google's Analytics evangelist, Avinash Kaushik, breaks down the different offerings in "Web Analytics Tools Comparison: A Recommendation":
The Leaders: Omniture, HBX (WebSideStory), WebTrends, CoreMetrics
The Alternatives: ClickTracks, IndexTools, Unica NetInsight
The Free: Google Analytics, Microsoft Gatineau
Kaushik also suggests that Visual Sciences, a WebSide Story company, is in a class by itself.
From an investment standpoint, there are two public analytics companies - Omniture (OMTR) and WebSideStory (WSSI). OMTR trades for 50x '07 EV/EBITDA and WSSI trades for 11x. OMTR is growing 3-year EBITDA CAGR of 50% rate and WSSI is growing at 30%. Both companies are expanding margins and are cash flow positive. M&A rumors swirl in this sector. On the negative side, both companies face an increased threat from Google and Microsoft's free offerings.
Why the extreme valuation difference? WSSI has undergone a management and sales force overhaul (the new CEO joined in November). It is also in the process of integrating HBX and Visual Sciences; it has a weak balance sheet (approx. $5m in cash and $15m in debt), and it is has an expensive lawsuit with Neilsen NetRatings. OMTR has benefitted from WSSI's structural changes and gained market share. In addition, OMTR has a reputation for more seamless integration than WSSI.
This said, I think WSSI's stock price overly discounts the company's many challenges. Its products are well-regarded (see above) and the company should be able to work out its sales and integration issues (the lawsuit is a wild card). I think WSSI should trade closer to 15x EBITDA ($15), versus the current price of $11. I think we'll see the impact of the re-organization in the second half of this year.
Meanwhile, OMTR looks interesting as a short in a pair trade. However, I generally prefer to avoid shorting companies on valuation, especially when the underlying fundamentals are solid and the short interest is through the roof (good luck getting borrow).
WSSI reports earnings tonight after the close.