If you're into technology, you've probably seen a few of VA Software's (NASDAQ:LNUX) properties, and no, I'm not talking about any version of the GNU/Linux operating system. The ticker is a remnant of when VA Software was known as VA Linux. The company reported Q3 2006 earnings Tuesday night, with good results across all three of its business segments.
The software segment consists mainly of the SourceForge Enterprise suite, a source code management system for large development projects scattered across continents. In that division, year-over-year revenue improved 53%, ringing up $2.9 million this time on the strength of signing up new customers such as Motorola (NYSE:MOT) and Amazon.com (NASDAQ:AMZN) for large license and support contracts.
The free version of SourceForge is sourceforge.net, a community website hosting thousands of open-source development projects like Audacity, 7-Zip, and WINE. It's the flagship in the ad-supported media segment, alongside technology news and discussion site Slashdot and a few less popular sister sites.
VA Software likes to point out that its network of online technology news outlets has ranked No. 1 in Nielsen/NetRatings' rankings of news sites in that niche since 2003, and this department is the current star of the company's show, with 96% higher earnings compared with Q3 2005, for a total of $4 million.
Finally, there's the e-commerce division, also known as ThinkGeek.com. That's where techies can find essential accessories like caffeinated mints, LED lights for their kitchen faucets, and "There's no place like 127.0.0.1" T-shirts. It may be a somewhat frivolous enterprise, but it brought in $3.9 million in sales this quarter, up 29% over last year's period.
The combined revenue totaled $10.8 million, up 54%, on just 31% higher cost of revenues and an amazingly tight 5.2% increase in operating costs. It all adds up to $0.02 of earnings per diluted share, whether or not you're looking at generally accepted accounting principles or pro forma numbers. After operating at a loss for many years, VA Software has started to deliver some profits.
VA Software seems to have decided to focus on its media business, which makes sense in light of these results. To that end, the division just got a new president in Rich Marino, formerly chief operating officer of Rule BreakerCNETNetworks (NASDAQ:CNET) and CEO of PC World Communications. This infusion of experienced and talented leadership should leave VA Software well equipped to deal with the onslaught of new competitors in the technology news field, including Digg.com and Ars Technica. And that leaves this miniature technology keiretsu in good shape for the future.
One word of caution: The stock is trading close to penny-stock land, and at hefty price-to-sales ratios around 7. Before jumping in, you need to consider whether you think the company's admittedly bright prospects justify the price premium. Given the unique position of Slashdot and SourceForge, with the cache they have among technologically literate audiences, I think the product just might match the price.
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Fool contributor Anders Bylund reads Slashdot on a daily basis but owns none of the stocks mentioned here. He also contributes articles to Ars Technica. Fool disclosure is always state of the art.
