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THE DAY AHEAD: Niku leads IPO parade

A big IPO week won't take long to get started as Niku Corp. (Nasdaq: NIKU) steps up to the plate Tuesday with 8 million shares priced at $24, above its $20 to $22 range.

In an indication of strong demand, Niku (profile), an information technology services company, doubled its price range from $10 to $12 last week. Blue-chip underwriter Goldman Sachs should also push this offering into the stratosphere.



Niku: Promising future?



Niku shares the stage with Avenue A (Nasdaq: AVEA), MatrixOne (Nasdaq: MONE) and Net.Genesis (Nasdaq: NTGX). All four IPOs should do well in their market debuts.

Through its software and online marketplace, Niku allows professional services companies to share knowledge, learn from past mistakes and manage IT projects so they are done on time and on budget. Target markets for Niku include consulting, financial services, medicine, law, engineering and advertising. Niku also provides an online marketplace for services.

The good

Niku's business isn't glamorous, but it could be vital to services companies.

According to the U.S. Department of Commerce, the gross domestic product of the professional services industry, including business, health, legal and educational services, exceeded $900 billion in 1997.

That's a big market to chase. And Niku has already enlisted some big-time tech players as customers. The company counts consultants Comdisco (NYSE: CDO) and Inforte (Nasdaq: INFT) as customers. It also has Business Objects (Nasdaq: BOBJY), Computer Associates (NYSE: CA), EMC (NYSE: EMC), and Gateway (NYSE: GTW) on its client list.

Niku is likely to ride the same wave that is carrying services businesses. As services demand soars, Niku's addressable market will grow accordingly.

The market for business-to-business electronic commerce for services is estimated to grow from $22 billion in 1999 to approximately $220 billion by 2003, according to Forrester Research.

In filings, Niku said its goal is to be the "leading provider of Internet software products and online marketplaces for the sourcing, management and delivery of professional services." The company plans on getting there by boosting its customer base, enhancing its web site and services marketplace, and targeting industries such as financial services, medicine, law and advertising.

The bad

Niku has big plans, but also has some big losses. As of Oct. 31, 1999, the company had an accumulated deficit of $16.6 million and three customers -- USinternetworking (Nasdaq: USIX), Sybase (Nasdaq: SYBS) and SalesLogix (Nasdaq: SLGX) -- accounted for half its revenue.

Including recent acquisitions, Niku lost $32 million for the nine months ending Oct. 31 on sales of $12.3 million. Niku bought Proamics Corp. in December 1999 and Legal Anywhere in January 2000 and will carry goodwill expenses for the next three to five years.

Niku, which was incorporated in January 1998, is in the early stages of its development to say the least.

The competition

In its regulatory filings, Niku said it competes against a lot of players. For starters, Niku competes with internal IT departments and in-house developers. And then there's the rest of the tech crowd, which competes with Niku on various levels.

Niku cited developers of professional services automation software and related Internet-based applications; providers of hosted software for IT consultants; operators of Internet-based job boards; developers of project management software; and enterprise resource planning software companies as current or future competition.

In a nutshell, Niku could compete against a wide range of players that includes Hotjobs.com (Nasdaq: HOTJ) to EDS (NYSE: EDS) to Oracle (Nasdaq: ORCL) and PeopleSoft (Nasdaq: PSFT).

The good news -- at least for Niku -- is that no company has put together all the pieces yet. The company also has a seasoned management team -- CEO Farzad Dibachi was chief of Diba Inc., an information appliance company that was sold to Sun Microsystems. Add it all up and Wall Street could bet big on Niku.