Opsware's Money on Web Plumbing

Research firm IDC forecasts a doubling of servers - that is, computers hooked to the Internet to serve data -- worldwide in the next five years. This may be an understatement, as it seems there is a rush to use the Net. Look at voice over Internet protocol (VoIP). Recently, for example, Comcast (Nasdaq: CMCSA  ) announced a massive VoIP service for its 21.5 million subscribers.

But with so many servers, there's an increasing need to manage complexity, and that's why Comcast selected Opsware (Nasdaq: OPSW  ) software to help things out. Opsware software is an end-to-end solution for major companies that need to configure, secure, change, and scale their network of servers. In fact, as seen in its latest report, Opsware snagged eight major customers in the prior quarter.

During this period, revenues were $7.3 million, up sequentially from $6.2 million. Net income was $2 million. Then again, this was the result of a onetime gain from a better-than-expected lawsuit settlement with Qwest (NYSE: Q  ) . But, Opsware had positive cash flow for the quarter at $1.1 million (it was the fourth straight quarter of positive cash flow).

Opsware continues to innovate its product offerings. In mid-May, the company launched its Opsware Satellite package for IT automation for remote servers. The company has also made a variety of smart acquisitions, such as for Tangram Enterprise Solutions.

There are risks. Opsware still has heavy reliance on its key partner, Electronic Data Systems (NYSE: EDS  ) . But this is starting to diminish.

The average customer deal size is still in excess of $600,000 for Opsware. While this sounds positive, it means there is a risk of a revenue shortfall if the sales cycle lengthens.

But, the fact remains that Opsware knows how to snag customers and, as a result, is building up its deferred revenues, which increased from $10.1 million to $14.1 million from a year ago. What does it mean? Essentially, the company is spring-loading profitability into the future.

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Fool contributorTom Taulliis the author of The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any of the stocks mentioned.


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