Last week, InnerWorkings
The good news is that the top line has been on a tear. From 2003 to 2005, revenues surged from $16.2 million to $76.8 million. As of the first half of 2006, they came in at $57.6 million, up from $31.1 million last year.
However, cost of goods sold (COGS) is nearly 80% of revenues - which makes it difficult to post a strong bottom line. For example, net income was a mere $2.6 million this year.
To understand why, let's take a look at the inner workings of InnerWorkings' business model. The company has developed a sophisticated database platform that allows customers such as John Deere, Circuit City
InnerWorkings' key competitive advantage is its technology, including "4caster" (real-time cost estimates based on historical data), personalized data-entry screens based on product type, and alerts if milestones are not being met. With each new print job, the company is collecting more information for its database, making its system more valuable.
Electronic platforms can be quite powerful, as seen with another recent IPO, Loopnet
Unfortunately, InnerWorkings' inherent problem is its need to generate significant amounts of revenues to produce decent profitability. The company must also deal with entrenched competitors like Banta, Quad/Graphics, Quebecor, and R.R. Donnelley
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Fool contributor Tom Taulli does not own shares of any company mentioned in this article.