Is This Tech's Next Great Value Play?

I'll grant there aren't many tech value plays, but Actuate (NASDAQ:ACTU), an open-source provider of business intelligence (BI) and analytics software, may be one.

You might not know it looking at the numbers. Fourth-quarter revenue and per-share earnings declined slightly. Full-year cash from operations plummeted almost 41%.

Sound bad? I suppose it is, but Actuate still produced more than $16 million in free cash flow during 2009. The company also ended the year with more than $75 million in cash versus $30 million in debt.

Best of all, Capital IQ figures that shares of Actuate trade for roughly 11 times next year's normalized earnings. That's well below the S&P 500's average P/E ratio, which only last week hovered above 18, BusinessWeek reports.

Hey, BIRT!
If Actuate doesn't get much respect, it's because SAP (NYSE:SAP) and IBM (NYSE:IBM) have already acquired the largest BI players, Business Objects and Cognos. TIBCO (NASDAQ:TIBX) also plays in this space with Spotfire, and there's money flowing into BI start-ups such as Pentaho and GoodData. That's quite a din for Actuate to rise above.

And yet there is one number from the company's earnings report that offers hope for long-term growth: License revenue improved 1.6% in the fourth quarter. License revenue matters because it's reflective of new sales, and Actuate needs to transform open source users into paying customers.

The challenge isn't unlike what Red Hat (NYSE:RHT) faces. Actuate is the creator and head cheerleader for BIRT, an acronym for the open source Business Intelligence Reporting Tools project. Users download software for tracking and manipulating data at their leisure, and at no cost.

Actuate has had some success at converting BIRT users. Revenue from this group rose 18% year over year in Q4, thanks in part to a new online exchange where developers can showcase apps built for BIRT. Think of it as Actuate's attempt to steal from salesforce.com (NYSE:CRM), which built App Exchange and Force.com to entice users to commit to its platform.

Analyst Howard Dresner, a longtime observer of the BI industry, admires the ambitiousness of Actuate's plan.

"I like where they're going with their technology," Dresner said in a recent interview. "They have to upgrade customers from the old stuff to the new stuff, but their strategy makes sense. As always, it comes down to execution."

Our 150,000-strong Motley Fool CAPS community appears to agree. Those who've rated Actuate like it:

Data current as of Feb. 9.

I'm with the crowd on this one. Trading for just 11 times next year's earnings, Actuate has a low hurdle to clear. I'm betting it will make it.

But that's my take. Now it's your turn to weigh in. Would you buy Actuate at these levels? Make your voice heard using the comments box below.