CurrentOfferings.com Story:

WebSideStory's Act I, After A Few Twists, Ending Well With IPO

Jay Bonasia, Investor�s Business Daily, Sept. 29, 2004

After plenty of plot twists, WebSideStory seems to have had a happy ending for Act 1 of its story.

The company, which provides services to help clients gauge the performance of their e-commerce Web sites, twice in recent years postponed initial public stock offerings.

Its stock finally debuted on Tuesday, going out at $8.50 a share and rising as much as 17% to 9.93 before closing up 7% at 9.10. Its stock symbol is WSSI.

Now the company, an 8-year-old survivor of the dot-com crash, hopes for similar success with Acts 2 through whatever.

"WebSideStory is a nice little company," said Jeff Hirschkorn of Current Offerings, an IPO research firm.

San Diego-based WebSideStory sold 5 million shares and raised $42.5 million.

WebSideStory's HBX service helps corporate customers measure the success of their online marketing campaigns and e-commerce sales, a market called Web analytics. The company also helps customers improve the design and content of their Web sites.

Overall revenue in the Web analytics niche reached $212 million last year, says research firm International Data Corp. IDC forecasts that the sector will grow at a compound annual rate of 14% through 2007.

Analysis 'Becoming Essential'

That would be faster than the single-digit pace it sees for tech sales overall. There is growing demand for Web site tracking, says IDC analyst Bob Blumstein.

"You're flying blind if you don't have good Web analytics," he said. "It's becoming essential at both a strategic and tactical level to have this sophisticated kind of analysis."

Many investors were cheered by WebSideStory's solid debut, says Hirschkorn.

The IPO followed a strong launch last week of another tech company, Cogent, (COGT) despite a generally down stock market.

Cogent makes fingerprint identification systems. Shares of its stock shot up 58% to 19 a share on its first day of trading on Friday.

Combined with Cogent's performance, the early upside for WebSideStory has given new hope to tech investors, says Hirschkorn.

"Stability seems to be back in the market, so there's some promise here for high tech," he said.

According to its IPO filing, WebSideStory lost money the past three years, but made money the past three quarters. The company said it lost $2.4 million on sales of $16.4 million in 2003.

For the first half of this year, WebSideStory reported earnings of $319,000 on sales of $10.3 million. As of June 30, it said it had an accumulated deficit of $55.6 million.

WebSideStory most recently planned to go public in August, about the same time as the heralded stock debut of Google (GOOG).

WebSideStory cited weak market conditions for its decision to pull back at that time, when it expected its initial shares to sell at $10 to $12 a share. Its latest expected range was $8 to $9, so it went out at its midpoint.

The company also shelved an IPO in October 2000, again citing a shaky stock market. The bursting of the dot-com bubble was in full swing by then. Unlike many others, WebSideStory didn't fold.

Crowd Got Too Big

This market became overly saturated with dozens of startups during the dot-com bubble, says Rich Petersen, an analyst with Pacific Crest Securities.

"There was too much overcapacity as the result of overfunding for too many early-stage companies," Petersen said. "Now a lot of the deadwood has been cut out of this market."

More and more customers want to measure the progress of their Web sales, says Petersen. He adds that the sector has a ways to go before reaching full maturity.

"The long-term trends are good for Web analytics, but it is still very early for this market," he said.

Friedman, Billings, Ramsey & Co. and RBC Capital Markets were lead underwriters of the IPO, which used a conventional method instead of the auction style championed by Google in August.

William Blair & Co. and Roth Capital Partners co-managed the deal. The underwriters got an option to buy 750,000 more shares to cover potential overallotments.

Other Web analytics service providers include privately held Coremetrics, NetIQ, (NTIQ) SPSS (SPSS) and DoubleClick (DCLK).

Search Growth Heightens Need

Demand for Web analytics will only continue to grow, contends Joe Davis, chief executive of Coremetrics. He says that's because the technology gives users a scientific way to track the behavior of Web site visitors and their reactions to marketing campaigns.

Web analytics helps users measure how many visitors came to a Web site from specific e-mail pitches or search engines, how long they stayed, what they bought and how often they returned.

More customers are spending increased marketing dollars to register their Web sites under thousands of search terms at popular search engines such as Google, adds Davis. That's driving more users to Web sites and making it more important for companies to track just how well their sites are doing in serving those customers, he says.

"Clients are shifting money off of billboards and TV ads to buy Google search terms," Davis said. "We're seeing greater maturity in the market as a lot of lesser vendors get washed out of business."