Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.