Fool.com: Radiant Systems Shines (Fool Plate Special) March 2, 2000

FOOL PLATE SPECIAL
An Investment Opinion

Radiant Systems Shines

By Dave Marino-Nachison (TMF Braden)
March 2, 2000

Shares of Radiant Systems (Nasdaq: RADS), which makes software systems for retailers of all kinds, quickly doubled before cooling in morning trading today following last night's announcement that software giant and NOW 50 component Microsoft (Nasdaq: MSFT) will take an undisclosed equity stake in the company as part of a deal in which the companies will develop and market an online management and supply chain solution.

Radiant will use Microsoft's software and technologies to develop software and Internet destinations geared toward small and medium-sized retailers and their supply chain partners. For an idea of what those Internet destinations are about, check out Radiant's RetailEnterprise site, an under-development area the company hopes to develop as a business-to-business e-commerce hub for retailers using vertically organized theme areas, called vertical solution portals (VSPs), to help companies communicate and transact. The first two, in testing now, are set to launch publicly in Q2 and will focus on the convenience store and food service industries.

Microsoft, besides buying the aforementioned piece of Radiant, will help out with joint marketing programs, product development funding, distribution through the company's bCentral small-business portal, access to applications like Hotmail and MSN Messenger, and more. The structure of the deal is such that other strategic and equity partners could get involved.

Well, that's pretty much the gist of the press release, and given the relatively light nature of it there's not much to say in trying to get an investor's arms around today's remarkable rise in Radiant's market value, besides to say that an awful lot of value is apparently being ascribed to the "Microsoft Seal of Approval." OK, Credit Suisse First Boston's doubling of its price target on the shares to $150 apiece probably helped.

That's not necessarily a bad thing, but it's worth thinking about -- particularly when looking at the stock's 12-month chart, which reflects a 400% gain since July but "only" a 30% rise since this January when Radiant launched RetailEnterprise. Today's move makes the pop the shares experienced when we discussed a deal to develop interactive point-of-sale devices with America Online (NYSE: AOL), another investor in the company, last August seem almost quaint. The formation of its Radiant Ventures joint operation with the online services company was likely among the lead catalysts for the stock's ascent, though further news on it has been slim.

But also powering the shares' rise before today was a year during which the company's core business of providing retailers with management software and point-of-sale systems performed well to the tune of solid revenue and profit growth. Radiant continues to sign up customers, notably chicken chain and Fool favorite Chick-fil-A, which signed on last month.

This move certainly suggests that RetailEnterprise is a viable driver of future growth for Radiant, particularly arranged as it is to offer a wide range of services while still maintaining a focus on retail, its bread and butter. Investors interested in this concept might also want to investigate VerticalNet (Nasdaq: VERT), subject of a June StockTalk interview.

As for today's pop in share price? Given the current market environment it's unsurprising, but investors should keep in mind that optimism for RetailEnterprise is only a small part of what's been driving the shares up over the past year and research the company with that in mind. It should be noted, though, that given Microsoft's intention to fund, promote, and support the venture, there is certainly reason to consider today's news more than a buzzword-driven press release.

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