Founded 10 years ago, InternapNetwork Services (AMEX:IIP) was finally able to post a profit. In the fourth quarter, net income was $541,000, or break-even per share. This compares to a net loss of $600,000 for the same period a year ago. During this time, revenues increased 12.6% to $42.6 million.
What's more, the company is generating positive cash flows. In the first quarter, the amount was $5.5 million. It certainly helps that the company has been successful in reducing costs and finding operational efficiencies.
Internap builds complex technologies to help optimize networks. Huh? Well, let's take an example: Friendster is a fast-growing social networking site, with 18 million registered users and 60 million page views per day. No doubt the company has a large bill for bandwidth. In fact, when there is a sudden burst in traffic, there is usually a burst in bandwidth costs.
So, Friendster installed Internap's technologies to help manage the bandwidth. Thus, costs are much lower. Interestingly enough, Friendster was able to reduce its support staff as well.
With the surge in online activity -- such as e-commerce, social networking sites, online video -- there is a need for the services that Internap provides. As a result, the company raised its 2006 revenue growth guidance to 10% to 12%, which is up from 5% to 7%.
But this means the company will need to increase the capacity of its network. This will require capital expenditures of $12 to $14 million over the year. While this will dampen cash flow (and perhaps profitability) in the short run, it will allow the company to capture more growth over the next few years. However, on the conference call, the CEO said he does not expect losses for this initiative. Hey, if it took 10 years for the company to make a profit, why stop now?
Fool contributor Tom Taulli does not own shares mentioned in this article.
