Open Market soars on upgrade

Shares of Open Market Inc. (Nasdaq: OMKT) jumped 1 1/4, or 10 percent, to 13 5/8 in early trading Monday after PaineWebber upgraded the stock to a "buy" from a "neutral."

PaineWebber cited increasing demand for e-commerce products, and a recent deal to offload a lot of risk related to its Folio division as reasons for the upgrade.

Despite the jump, shares in the Redwood, California-based e-commerce software maker are well below 52-week high of 27.

Analyst James Preissler gave Open Market a $25 one-year price target, up from $14. Open Market announced an $18 million distribution agreement with ABSB for its Folio and Commerce products on June 9th, and e-commerce product revenues have grown to $8 million in this year's first quarter, up from $3 million a year ago. PaineWebber's revenue estimate for 1999, however, is now $67 million, down from $70 million.

"We believe the ecommerce application software market remains extremely unpredictable and volatile until the end of 1999," said Preissler in a research note. "We firmly believe this is an industry issue, not OMKT specific."

PaineWebber has also lowered estimated expenses to $76 million, down 7 percent, from an original $82 million. Preissler's estimated losses for 1999 will be 22 cents a share, down from 31 cents a share. PaineWebber expects Open Market to break even by the second half of 2000, with potential profitability in the fourth quarter.

First Call estimates by 11 brokers put Open Market at a loss of 25 cents a share for 1999.

Potential competitors Microsoft (Nasdaq: MSFT), IBM (NYSE: IBM), Oracle (Nasdaq: ORCL), and others all have significantly larger resources, sales organizations, and customer bases, and may challenge Open Market's leadership in electronic commerce software, which Preissler called a volatile and "nascent market with little forward visibility."