Can You Profit From Chatting? – LivePerson, Inc. (LPSN): Oracle Corporation (ORCL), LogMeIn Inc (LOGM)

Chatting can be fun, there’s no doubt about it. But chatting also has another, much more lucrative, side to it. By using a simple chat- box to communicate with potential online- visitors to its home page, a company can better interact with its customers and create more business. One of the companies that focuses on creating such a chat-box solution is LivePerson, Inc. (NASDAQ:LPSN).

Oracle Corporation (NASDAQ:ORCL)Chatting – a powerful business tool

LivePerson, Inc. (NASDAQ:LPSN), listed both on Nasdaq and the Tel Aviv Stock Exchange, began its way with a very basic, somewhat primitive business solution. A potential customer had to click the “Contact” button and then a chat will commence. Later on, the company came up with a more proactive system. The system could identify pages with a high churn rate and approach customers with offers that suit their specific needs. The third, most sophisticated version of the product is an intelligent ‘auto-pilot’ system which identifies customers according to the extent of assistance they need. This way, LivePerson is able to take a lot of the pressure off the call centers and greatly improve the quality of service that customers receive.

What I like about LivePerson

1. Growing markets: the company operates in high growth markets. Specifically, the segment of CRM is currently valued at $4.5 billion and expected to grow to $6.3 by 2015. In addition, the chat market in the U.S is expected to grow from $361 million to $630 million in 2017, according to Frost & Sullivan.
2. Profitability: LivePerson, Inc. (NASDAQ:LPSN) is able to maintain high gross profit margins. The company is able to achieve 20% return on equity with a mouth- watering gross margin of 78%.

What I don’t like about LivePerson

1. Tough competition: high profitability in the CRM market led to entrance of various rivals of a much larger scale than LivePerson. LogMeIn Inc (NASDAQ:LOGM), which operates in the exactly same segment has sales of $160 million annually, with a profit twice as high as LivePerson’s. Another huge competitor is the mighty Oracle Corporation (NASDAQ:ORCL). In 2011, Oracle Corporation (NASDAQ:ORCL) purchased two companies that compete directly with LivePerson, Inc. (NASDAQ:LPSN), for a total amount of $2.5 billion. It certainly appears that Oracle has its mind set on gaining market share in the CRM chat segment.
2. Not cheap: LivePerson, Inc. (NASDAQ:LPSN)’s shares trade at a hefty valuation. At $14 a share, they trade at a P/E of 35 and price/sales of 4. That’s pretty expensive by all means. Just to get a general feel for valuations among SaaS companies in general, take a look at LogMeIn Inc (NASDAQ:LOGM) and Oracle Corporation (NASDAQ:ORCL) above. Oracle Corporation (NASDAQ:ORCL) trades at a P/E of 11.7 and price/sales of 4, while LogMeIn Inc (NASDAQ:LOGM) trades at a P/E of 29 and price/sales of 3. Dov Rozenberg, an analyst at Clal Finance comments that perhaps the steep price for LivePerson, Inc. (NASDAQ:LPSN) indicates a premium for a possible take-over bid, but that is far from certain.

The Fool chats ahead

Chats are an extremely powerful commercial tool in the arsenal of marketing. I believe that LivePerson could greatly benefit from the super- growth in this sector in the years ahead.

The article Can You Profit From Chatting? originally appeared on and is written by Shmulik Karpf.

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