Keynote Systems, Inc. (KEYN): Should You Follow the Big Money Into the Web Analytics Biz?

Page 1 of 2

Keynote Systems, Inc. (NASDAQ:KEYN)As businesses, both large and small, move their operations online, they are looking to software companies for the ability to track user experiences and gain an advantage over the competition. Specialists like Keynote Systems, Inc. (NASDAQ:KEYN) and Compuware Corporation (NASDAQ:CPWR)’s Gomez unit have built their businesses around ensuring that companies’ websites are delivering value at a continuously high performance level. As growth rates in the sector decline, private equity sees an opening, with investment firm Thoma Brava recently offering to acquire Keynote for roughly $395 million. So, should investors follow its lead?

What’s the value?

Keynote Systems, Inc. (NASDAQ:KEYN) runs one of the world’s largest quality control networks for commercial websites, with 300 monitoring locations in 180 countries. It has also been focusing on the large enterprise market due to the proliferation of mobile devices and the increasing need to manage website performance across operating systems. With large companies looking to outsource to a limited number of globally connected suppliers, Keynote improved its product offerings by acquiring mobile specialist Mobile Complete in 2011.

In FY2013, Keynote Systems, Inc. (NASDAQ:KEYN) has generated relatively weak financial results, with decreases in revenues and adjusted operating income of 0.7% and 10.8%, respectively, versus the prior-year period. Despite signing up a rising number of customers to its website monitoring platform, the company’s top-line growth was hurt by declines in its mobile business, especially in the European region. In addition, Keynote’s operating profitability was negatively impacted by rising tech development costs as it competes with larger competitors for skilled labor. While Thoma Brava’s acquisition price was expensive, at roughly 17 times trailing adjusted EBITDA, the investment firm should be able to create operating efficiencies with its control position.

Finding another story

Meanwhile, industry competitor Compuware Corporation (NASDAQ:CPWR) has also been an acquisition target lately, with large stakeholder Elliott Associates offering to buy the company in January 2013. The company has a leading position in the web analytics business through its Gomez and dynaTrace units, which manage a hosted network across 33 countries. However, Compuware has been plagued by declining sales and profit for a number of years, as customer purchases of its mainframe software and maintenance products continue to dwindle.

In its latest fiscal year, Compuware Corporation (NASDAQ:CPWR) reported poor financial results, with declines in revenues and adjusted operating income of 6.5% and 28.4%, respectively, compared to the prior year. The company’s operating income was hurt by double-digit sales declines in its mainframe unit, the source of most of its profit, as well as higher compensation and development costs. On the upside, Compuware’s web analytics unit generated higher sales, up 11% for the period, and is the company’s likely future growth engine. Despite attempts to shake Elliott with an upcoming initial public offering of its growing collaboration software unit, Compuware seems to have a long-term battle on its hands with the activist hedge fund.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!