Investors Turn Down SoundBite

It seems that SoundBite Communications (Nasdaq: SDBT  ) is cursed. The company delayed its IPO in mid-October because it received a letter from Universal Recovery Systems about alleged patent infringement. Then, last week, SoundBite slashed its offering from 6 million shares to 5.2 million and priced the deal at $8, which was below its initial $12-$14 range. It certainly didn't help that the IPO came out a day after Thursday's plunge in the Dow.

But SoundBite has a sound business. The company delivers on-demand software for so-called automated voice messaging (AVM) services. This allows companies to send large volumes of recorded messages to customers, for purposes including collections, customer care, and marketing pitches.

Because it's on-demand, SoundBite's technology does not require hardware investments or high-priced consultants. It usually only takes a few days to implement the system.

So far, SoundBite has been growing at a healthy clip. For the first half of this year, revenue is up 49% to $18 million. The company even posted net income of $428,000 in Q3. There are more than 200 customers, including big names like AT&T (NYSE: T  ) .

Of course, SoundBite does face competition -- for example, from Avaya. But keep in mind that many of its rivals have traditional software solutions. In fact, SoundBite's on-demand rivals are fairly small at this point.

Interestingly enough, SoundBite is selling at a discounted valuation compared to some of its peers that have recently gone public. The company currently trades at about 2.4 times revenue, which compares with multiples of 7 to 17 for companies like (Nasdaq: SLRY  ) , athenahealth (Nasdaq: ATHN  ) , and Constant Contact (Nasdaq: CTCT  ) .

What about the legal problems? Such things are normal in the tech world, especially in fast-growing sectors. Consider that ShoreTel (Nasdaq: SHOR  ) received several patent claims before its IPO. But it looks like investors are shrugging it off.

This is not to imply that there is no risk. A legal fight is not cheap -- and it's distracting.  But SoundBite is selling at a fair valuation in light of its growth rate, and it has a strong product offering. So for Foolish investors searching for an IPO, this one is certainly worth a look.

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  • Report this Comment On November 05, 2007, at 6:03 PM, 6uldv8er wrote:

    What upside do Fools see in SDBT?

    Every consumer hates Outbound Calling. IMO the rest of the world does not care about outbound calls, they care about text messaging.

  • Report this Comment On November 06, 2007, at 1:33 AM, thesenutz wrote:

    ...."Of course, SoundBite does face competition -- for example, from Avaya. But keep in mind that many of its rivals have traditional software solutions. In fact, SoundBite's on-demand rivals are fairly small at this point."

    Yes, there is a huge difference. Soundbite is really a service provider. In order for Avaya to get into this space it would have to acquire a company. This offering is built in what is called multi-tenant same as Avaya, Cisco etc. only offer single tenant. In other words one server one customer where as multi-tenant oneserver hundreds of customers. Huge economy of scale advantages.

  • Report this Comment On November 06, 2007, at 11:09 AM, 6uldv8er wrote:

    Cisco/Avaya makes $30m in a few hours.

    SoundBite takes a year to do that.

    SoundBite product caters to SMBs not enterprises. Enterprise needs are totally different from SMBs. broke the multi-tenant model to cater to Enterprises. One can bet that SoundBite will do the same at some point - so what is the value of multi-tenant model?

    SoundBite will need massive investment to cater to enterprises. Not an easy task.

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