With the success of companies like Salesforce.com
DemandTec develops software that helps retailers improve the pricing on their inventory, employing sophisticated data mining, forecasting, and statistical modeling. The average contract value is about $2.4 million, and customers include big names Best Buy
From 2005 to 2007, revenue has more than doubled to $43.4 million. Fiscal Q1 revenues grew at 32% compared to the numbers from last year's first quarter. However, the company is still operating at a loss; that's most likely the result of high R&D and marketing expenses. Although the company is still losing money, it's no longer losing quite so much. Over the past two years, net losses shrank from $9.2 million to $1.5 million, despite a 39% ramp-up in R&D to $15.3 million.
Unfortunately, the competitive environment is fierce. DemandTec faces pressure from business consulting operators such as McKinsey & Company, Deloitte & Touche LLP, and Accenture.
There are also the global powerhouses of SAP
There's definitely a need for DemandTec's offerings. Retailers must survive on extremely thin margins, while dodging threats from comparison-shopping sites, deep discounters, and e-commerce players. Despite all this, DemandTec's competition isn't going anywhere, and its increasing success could squeeze the company's growth rate. As we've already seen in the past couple of days, that could make for a seriously shaky stock price.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 4,317 out of more than 60,000 in CAPS. The Fool has a disclosure policy.