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.

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