As this week's impressive quarterly report from Amazon.com showed, e-commerce is still growing at a heady pace. That's good news for Art Technology Group (NASDAQ:ARTG), whose shares enjoyed a nice 8% pop following its own earnings report.
ATG develops e-commerce systems for large clients like DaimlerChrysler (NYSE:DCX), Dell (NASDAQ:DELL), and Apple Computer (NASDAQ:AAPL). It's a competitive space, filled with fierce rivals such as IBM (NYSE:IBM), Oracle, and Microsoft (NASDAQ:MSFT).
Despite those headwinds, ATG continues to grow its top line. Fiscal first-quarter revenue rose 22% to $29.2 million. However, license revenue plunged 18% to $6.6 million, as ATG continued to shift its business model from licenses to recurring subscription fees. That's a smart move in the long run, but it's tough to pull off well, as the recent performance of RightNow (NASDAQ:RNOW) demonstrates.
On the bottom line, ATG posted a net loss of $1.5 million, or $0.01 per share, compared to $2.6 million, or $0.02 per share, in the year-ago period. In brighter news, the business cranked out operating cash flow of $8.1 million and increased its cash holdings to $37.5 million.
It also seems that ATG's $48.3 million acquisition of eStara is paying off. eStara contributed a strong customer list and new capabilities such as click-to-call, click-to-chat, and call tracking. Based on its projections, management thinks the unit will achieve 2007 revenues of $25 million or more; in Q1, eStara generated $5.2 million in revenue.
ATG trades at two times revenue, a typical value among its software peers. However, if ATG continues to wring more growth from eStara, and cross-sell its new products to existing customers, that current valuation could increasingly seem like a relative bargain.
Put further Foolishness in your cart:
Dell and Microsoft are Motley Fool Inside Value picks, while Amazon.com and Dell are Stock Advisor selections. Follow the preceding links to try either newsletter free for 30 days.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 3,449 out of 27,827 in CAPS.
