Enthusiast software developers the world over are familiar with news site Slashdot and open-source development site SourceForge. The parent company of both of these properties is ready to report earnings Tuesday night, so let's take a look at what to expect from VA Software (NASDAQ:LNUX).

What analysts say:

  • Buy, sell, or waffle? The lone analyst with an official recommendation for VA Software says "buy."
  • Revenues. Revenue forecasts are provided by three analysts, though, and they average out to $10.7 million. That's 27% better than the $8.4 million of sales a year ago.
  • Earnings. The same three forecasters are hoping for earnings of about $0.01 per share, up from last year's breakeven normalized net income.

What management says:
Management seems intent on promoting SourceForge at every opportunity, while Slashdot and online store ThinkGeek are largely left to fend for themselves. If that's where the company sees its future, that's fine with me. VA is growing its customer base for SourceForge, and the average contract value is increasing to the tune of 33% year over year as of the latest earnings report. That's a solid base of operations, and the growth prospects certainly look brighter than those of engineer-friendly apparel or technology news.

What management does:
Margins are marching in lockstep toward a brighter future, and the company just turned profitable on a trailing non-GAAP basis with its latest report. There's no reason to expect any kind of losses Tuesday, whether you're looking at pro forma or GAAP numbers.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

47.9

47.6

50

50.1

50.9

52.9

Op.

(21.6)

(21.4)

(17.2)

(15.6)

(8.3)

(0.7)

Net

(11.7)

(11.8)

(8.9)

(7.9)

(3.6)

1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
VA Software is debt-free and running in the black after years of wading through a sea of red ink. When the company posted its first quarterly net profit two quarters ago, the stock price doubled in a matter of days and added another 50% within a month. The result was a high-flying valuation of around 8 times annual sales and 8.6 times book value, multiples worthy of proven winners like Yahoo! (NASDAQ:YHOO) or Google (NASDAQ:GOOG).

The price has settled down somewhat since then, dragged along with the general market pessimism that put its mark on our late spring and early summer. Price-to-sales sits at 6.8 today, and price-to-book at 6.5. While that isn't exactly cheap, at least it won't cost you an arm and a leg.

Now, VA is trending up and the future looks good, but I think a word of caution is in order. You could argue that flagship news site Slashdot is losing relevance to cheeky young upstart Digg, and Google recently launched a software development hosting site that looks like direct competition for SourceForge, VA's other pride and joy. But at least there's still little or no competition for geeky shopping site ThinkGeek, which brings in a significant portion of VA's sales and profits. This earnings report looks like sunny skies, but the other issues could hurt the company down the road -- if left unheeded.

Competitors:

  • JupiterMedia (NASDAQ:JUPM)
  • Viewpoint (NASDAQ:VWPT)
  • Yahoo!
  • Google
  • Borland Software (NASDAQ:BORL)
  • SBE (NASDAQ:SBEI)

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but reads Slashdot regularly. You can check out Anders' holdings if you like. Foolish disclosure is always one step ahead.