Thinking Big Pays Off for AppNet

Its IPO got a cool initial reception from investors last June, but lately Wall Street has been treating e-commerce services and software player AppNet like an emerging winner in its space.

Especially Thursday, when shares of AppNet (APNT) soared 36 percent in the wake of a
strong Q4 report showing narrowing losses and healthy revenues. The stock hit an all-time high of 71 5/8 before closing at 70.

And while APNT may have cooled off somewhat Friday – it was trading in
early afternoon at 65 15/16, down nearly 6 percent — shares are still up more
than 50 percent so far this year.

It was a different story last June 18, when AppNet’s offer of 6 million
shares at $12 each was greeted with yawns by investors. The stock opened
that day at $12, and closed at $12.

Since then AppNet has benefited from two things: 1) general bullishness
toward B2B e-commerce players, and 2) a propensity for landing large,
high-profile contracts.

Last quarter alone, AppNet won five contracts of $5 million or more, the
most noteworthy coming from NASA and Sprint.

AppNet bills itself as an “end-to-end” provider of e-commerce services
and software. Like many of its competitors, such as Viant (VIAN),
USWeb/CKS (USWB)
and Scient (SCNT), AppNet offers a broad array of consulting, design and marketing
services.

For NASA, the company is developing Internet-based software designed to
allow scientists to correct malfunctions in orbiting spacecraft. Its
contract with UCCnet calls for AppNet to build and host a large platform
for executing B2B transactions. Sprint has asked the company to develop
interactive marketing programs for acquiring new long-distance
customers.

Being a jack-of-all-trades makes it hard to stand out from the crowd,
but AppNet appears to be pulling it off. Of course, the big advantage to
offering so many services is that when you land a large contract from a
NASA, say, the odds are that the customer will want to continue and
expand the relationship.

With 1999 revenue of $112.3 million and a market cap of $2.07 billion,
AppNet is trading at 18.5x TTM revenue, just slightly more than its TTM
multiple of 15.3x at the beginning of the year, despite the 50% rise in
stock price.

I thought AppNet was a good buy six weeks ago, when I placed it on
internet.com’s HotWatch 2000 list of 10 Internet stock picks for the
year. And I think it’s an even better buy now.


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