WebSideStory Is Off to the Races

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Churchill Downs (Nasdaq: CHDN) -- which operates top horse-racing venues -- may be an old company, but it does not act old. To capitalize on the 131st Kentucky Derby, the company has established a cutting-edge Web site.

However, Churchill Downs also wants to see what works and does not work on the site. So, the company has implemented WebSideStory's (Nasdaq: WSSI) software product, HBX. Basically, the technology allows for Web analytics, such as analyzing visitor interactions to see what content, features, and services are most popular.

And the success is resulting in strong growth for WebSideStory. This week, the company released its earnings report. In the first quarter, revenues hit $6.9 million, a 38% increase from the same period in 2004. In fact, for the sixth straight quarter, the company posted a net profit. In the first quarter, net income was $1 million, a 700% increase from the 2004 quarter.

In the quarter, WebSideStory snagged new deals with biggies such as Knight Ridder (NYSE: KRI) and Comcast (Nasdaq: CMCSA), signing over 100 new customers. Key acquisitions such as Atomz have allowed WebSideStory to offer more Web-based features in its product line. The analytics Atomz provides for search boxes on Web sites can be a valuable way to determine what Web visitors are interested in.

In light of this success, WebSideStory upped its guidance. For the second quarter, the company expects revenues of $9.2 million to $9.4 million, with earnings per share of $0.06 to $0.07. For comparative purposes, revenue guidance without the Atomz acquisition added to earnings would have fallen between $7.8 million and $7.9 million, representing 49% growth from the same period last year.

And the growth is likely to continue. After all, the online advertising industry is growing in excess of 30% per year -- and still only constitutes 5% of overall advertising spending. Industry bellwethers Yahoo! (Nasdaq: YHOO) and Google (Nasdaq: GOOG) have experienced more than 100% revenue growth over the past year (though this partly results from the two companies gaining market share at competitors' expense). As the online market becomes more important, so will the ability to analyze the results of advertising spending.

Fool contributor Tom Taulli does not own shares mentioned in this article.