2HRS2GO: Vignette paints rosy picture

Corporate website building remains a relatively small field, but it's a popular investment topic nowadays with all the buzz about e-commerce. And Vignette Software Inc. (Nasdaq: VIGN) happens to the market's stock of choice today.

Plenty of unprofitable or marginally profitable Internet companies carry aggressive recommendations from analysts, so why not Vignette? US Bancorp Piper Jaffray today started a "strong buy" rating on the provider of software for building websites for e-commerce and customer service. The move had boosted Vignette shares almost 7 percent by mid-afternoon.

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Vignette has been gaining recently, but it remains below the peak of its stellar IPO. Vignette shot so rapidly out of the gate in February that its lead underwriter, Morgan Stanley Dean Witter, actually started coverage of the stock as a "neutral" soon after the offering; Morgan Stanley has since upgraded Vignette to "outperform".

Shares recently have been climbing again, which could be why Piper Jaffray analyst Hany Nada timed his report for this week. Nada joins a growing list of boosters -- five research firms picked up the stock in the last six months after underwriters began coverage following the IPO. All of the eight analysts polled by Zack's Investment Research recommend Vignette as some sort of buy.

For that matter, research firms generally recommend the entire field of "customer relationship management" software for the Internet. Each of Vignette's publicly-traded rivals -- Silknet Inc. (Nasdaq: SILK), Broadvision Inc. (Nasdaq: BVSN), Open Market Inc. (Nasdaq: OMKT) -- commands "moderate buy" or "strong buy" ratings from their respective analysts.

Excluding companies such as IBM or Oracle, whose core businesses lie elsewhere, there are no huge businesses among these builders of business websites. Broadvision had the most revenue in the June quarter with $23.5 million, but that's not much larger than Open Market's $15.6 million (at least for e-commerce revenues) or Vignette's $14.9 million.

But Vignette happens to be growing the fastest: the company saw revenue in its latest quarter shoot up 409 percent year-over-year, compared to 206 percent for its closest competitor, Silknet, which also happens to have the smallest revenue base (less than $5 million) of the four companies. Vignette could boost that revenue even further, with plans to soon introduce several new applications. The company also landed broader distribution deals with partners such as US Interactive.

Vignette's rapid expansion -- the company signed up 67 companies in the quarter -- makes it the growth leader in the sector, at least for now. On the other hand, Broadvision is profitable now, while Vignette won't be for the next six quarters, if First Call's consensus estimates are any guide.

With the exception of Open Market, all these stocks have price-to-earnings multiples sufficiently high as to be meaningless. For the individual investor, you might as well look at the base price: Broadvision costs more than $100 a share, while Vignette currently trades in the 60s.

Silknet is cheaper, but also doesn't have the likely growth trends of Vignette. And Open Market is still trying to recreate itself. In the meantime, Vignette's price not only puts it within reach of investors, but also means it's still a viable acquisition candidate for a larger company (such as the aforementioned IBM and Oracle) that might be looking to expand its offerings for Web business.

Piper Jaffray's Nada has a price target of $100 for Vignette. If Vignette keeps up its current pace, it might be there sooner than you think.

Other issues:

3dfx Inc.

(Nasdaq: TDFX) The graphics chipset maker reports second quarter earnings this afternoon. First Call's survey of four analysts predicts a profit of 4 cents a share, with 3dfx having completed the STB acquisition. Don't be surprised to hear a little bit of upside, since 3dfx cards seem to be leading retail store sales in North America and Japan. But the company still needs to expand its OEM presence; the recent introduction of the 3500 card, which combines 3D graphics and TV tuner abilities, might help.

Sun Microsystems Inc.

(Nasdaq: SUNW) The $540 million acquisition of Forte Software is peanuts for Sun and its shareholders. But how much further will Sun go in competing with Java developers? Seems like the same kind of thing for which Microsoft has been criticized for years.

Broad market investors started the week with a smile. With two hours left in regular trading, the Nasdaq Composite Index was up 51.30 to 2699.63, the S&P 500 higher by 16.23 to 1352.84, and the Dow Jones Industrial Average up 133.61 to 11234.22. 22GO>