DemandTec in Demand

After its public offering in August, DemandTec (Nasdaq: DMAN  ) came under pressure from the roiling markets, fears of a credit crunch, and the mortgage meltdown. But since then, things have improved considerably, and the stock has spiked from $9.28 to $14.83. In fact, on last week's fiscal Q2 results, DemandTec's stock surged 14%.

Q2 revenues clocked in at $14.7 million, up 40% over the past year. The sequential increase was a hefty 11%. However, there was a net loss of $1.1 million, or $0.10 per share, which compares to a net gain of $110,000, or $0.01 per share in the same period a year ago. The loss is the result of having to plow lots of money into research and development in order to remain competitive against rivals like SAP (NYSE: SAP  ) and Oracle (Nasdaq: ORCL  ) . This accounts for about 35% of revenues.

DemandTec builds software to help retailers optimize pricing, promotions, and discounts. The roster of customers include blue-chip names like Wal-Mart (NYSE: WMT  ) , Best Buy (NYSE: BBY  ) , and Target (NYSE: TGT  ) .

While there are more than 130 customers, DemandTec gets most of its revenues from 30 customers. For example, nearly 30% of revenues come from only three customers. What's more, the average contract size is over $2.4 million.

In other words, DemandTec's business can be lumpy. And the loss of a customer or two can be a serious problem, especially for a company that posted only $27.9 million in revenues for the past six months. So Foolish investors should be cautious and expect DemandTec's stock to be volatile, which it has already been during its short life as a public company.

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