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 Salary.com (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.

For more Foolishness:


Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • 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 salesforce.com. 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.

    Salesforce.com 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.

Add your comment.

DocumentId: 539724, ~/Articles/ArticleHandler.aspx, 7/28/2014 3:38:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement