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Packaged Applications: BroadVision Seeks Broad Vision--Commerce

In the mad rush of Internet commerce, which Yankee Group estimated at $800 million this past holiday season on its way to a $2.74 billion arena for all of 1997, doubling to more than $5 billion this year, who's hot and not? Certainly not the toolmakers, software developers that have taken on this huge agenda.

Our analysis of two of the smaller players, Broadvision (NASDAQ:BVSN), and to a lesser degree, Connect (NASDAQ:CNKT), showed each trading at about 2x this year's revenue. So where's the money going? On the other side of commerce, the retail sites such as Amazon (NASDAQ:AMZN) or ONSALE (NASDAQ:ONSL), or others who seek out "brand names," bought a tools package from the bigger players such as Microsoft, Netscape, or even Open Market (NASDAQ:OMKT). This group trades north of 10x revenue.

Focusing on Broadvision, it claims 150 customers use its software including many of the telcos such as Bell Atlantic and US West. BroadVision's software allows corporations to rapidly deploy customer service and commerce solutions on their Web sites whether they be internal or external for Mass Customer Automation.

To use a buzz word, BroadVision touts itself as "one-to-one" commerce. In many ways perhaps BroadVision wants to be the Baan of Internet commerce software. Buy a package application, plug it in and you're in business on the Web.

BroadVision Or Far Sighted?

Company Symbol Share price 1-20-98 Shares out Mkt cap 1998 est. rev Rev. multiple
Broadvision BVSN $ 6.25 20.3 $ 126.88 $ 53.00 2
Connect CNKT $ 0.91 19.1 $ 17.30 $ 8.50 2
  TOTAL $ 7.16 39.4 $ 144.18 $ 61.50 4
  AVERAGE $ 3.58 19.7 $ 72.09 $ 30.75 2
all figures in million except multiples & share price

Analysts expect Web commerce both in the business-to-business and consumer space to grow exponentially. It already has. Relatively speaking, the business side shows more potential at this stage than consumer. Hence the shift by larger Web software makers into commerce and other dedicated servers aimed at business.

We see BroadVision's problem as this: small players such as BVSN show the skills on the technology side but have trouble telling that story on the OEM, corporate or Wall Street side. Its technology may be superior in many ways and thinking way ahead of the pack. But investors may not be riding the cutting edge for obvious reasons. They seem to have gone with the conventional thinking.

Part of the barrier to critical mass for smaller firms is the high price tag associated with their offerings. BroadVision applications can cost upwards of $250,000, taking it out of the range for most small and many medium-sized businesses. That translates into losses to date with earnings still probably 18 months out.

On the plus side, BroadVision says many of its clients are repeat customers, and BVSN's market cap sits under $130 million and sales approaching $55 million. Shares have traded as high as $10.375 and low as $4.375 the past 52 weeks.

BroadVision posted strong quarter on quarter growth in the upper double digits the past few quarters. Best exit? In our view BVSN has the tools but lacks the distribution and clout of the larger players. In that scenario perhaps a larger firm will acquire? Or, maybe the vision thing, broad or not, is severely under-rated at this nascent stage.