Inktomi Corp. (Nasdaq: INKT ) CEO David Peterschmidt seems to be in a pretty good mood these days, at least in interviews. Who can blame him?
The provider of caching software, search and directory engines, and comparison shopping tools for websites remains paltry by traditional standards. Quarterly revenues were just shy of $20 million. Profits are still at least a year away, if you believe the consensus opinion of the 13 analysts surveyed by First Call.
But the market believes the company will eventually grow into a software version of Cisco, and not without reason, since Inktomi seems to have little competition in its infrastructure niche. Other proprietary engines exist for handling searches and speeding up the delivery of Web pages, but no one has the broad acceptance of Inktomi, whose customers include AOL, Yahoo and MSN.com, which happen to be the three most popular websites today.
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With that customer base in mind, you can use Inktomi's growth as a meter for the growth of Web use, at least in the mainstream area. Which makes the company's quarterly report all the more interesting for anyone who invests in the Internet.
You probably know by now that Inktomi yesterday reported a narrower third quarter loss than analysts had predicted, but that's run of the mill for any halfway decent Internet company. More interesting is what Inktomi sees coming up.
Start with the company's Search Engine product, which powers HotBot, Yahoo, and soon, AOL's search. Inktomi handled 2.4 billion queries in the June quarter. The company sees queries increasing about 52 percent annually -- if it doesn't add any new customers at all.
Given the limited number of large portals, you'd think that Search Engine growth would flatten out pretty soon. Not so, says Peterschmidt. "I constantly keep being surprised by that," said Peterschmidt, speaking on the telephone last night, following the quarterly report's release. "I would have told you six months ago it would have happened six months ago. What's interesting about it is, more and more the vertical portals are coming on stream and generating a lot of growth, so I'm not so sure that I see an end in sight to some pretty good growth in search for awhile."
"Pretty good" query growth should translate into even better revenue growth. Inktomi gets paid for every query, a model that led to a 21 percent boost in search-related revenue the fiscal third quarter, on query growth of 10 percent.
Search engines aren't even Inktomi's main revenue generator anymore. Traffic Server, which speeds up the delivery of Web pages, saw 44 percent sequential revenue growth and now provides 60 percent of the company's business. It's another impressive list of customers -- mostly communications providers and other ISPs -- using it: British Telecom, AOL, Digex, and Netcom, to name some.
Want an e-commerce play? Shopping Engine, which lets websites offer retail comparison, is starting to roll out. The company expects it to take off in the holiday season. "The summer will be kind of a quiet period, we're just adding capability now," Peterschmidt said. "We're up to 4 million products now in the data set for the shopping."
And finally there's Directory Engine, sort of a Search Engine Lite, which organizes pages on a website so less experienced Web users can find things easily. With AOL already on board, it's a product that stands to see widespread adoption.
There are competitors for some of this stuff. But no one has it all, and best of all for Inktomi, websites are starting to buy product lines as opposed to just one offering. "We're seeing them start to take starting to take all of the products, two or three of the products at once," Peterschmidt said. "The way we've designed this is that over time, a user won't know if they're using search, shopping or directory from Inktomi. It will become a seamless type of environment against which you just in fact go to find information."
From a stock point of view, Inktomi actually might be considered a maturing Web company, if there is such a thing. It plans to sell 3.3 million shares once it gets approval from securities regulators -- expected to come within a week -- but after that, Inktomi doesn't expect any more offerings. "We'll use this one for strategic acquisitions," Peterschmidt said. "We think we'll be able to generate enough capital on our own from here."
Inktomi is no secret, of course, and hasn't been since its IPO splash last year. That kind of attention has turned Inktomi into yet another Web stock with an unearthly valuation, even with today's pullback, and even factoring in possible dilution from the pending stock offering. Unfortunately, nothing's cheap for Internet investors anymore, not even companies with unproven business models and competition everywhere.
At least Inktomi's growth has proven to be reliable, and its competitive landscape remains relatively -- always relatively, since there's probably someone out there somewhere targeting the company right now -- clean. That's as good as you can expect from an Internet company.
Apple doesn't want to pre-empt next work's big trade show, which is understandable; but also understandable is Wall Street's reluctance to bet on a company that refuses to offer anything beyond vague assurances of fourth quarter strength. Yesterday's conference call left many questions hanging, mainly about product expectations. Investors deserve better, but then again, since iCEO Steve Jobs isn't an Apple shareholder, there's no reason for him to care about that crowd.
The overall market seemed to be coming back in the afternoon after a late morning slide. With two hours left in regular trading, the Nasdaq Composite Index was up 10.33 to 2,828.46 and the S&P 500 up 10.13 to 1,408.30. The Dow Jones Industrial Average had risen 38.95 to 11,187.05. 22GO>