Casino Capitalism

Web.com Inks a Deal with WebSource

Today, Web.com (WWWW) announced the acquisition of WebSource Media, adding about $9 million in annual revenue to Web.com. The acquisition price is performance-based, and includes a combination of cash and stock based on the future results at WebSource. Given that future numbers will determine the ultimate valuation, it is difficult to give a clear financial opinion on this acquisition, especially since the SEC filings omit any hard operating numbers.

T-3 Energy Services Blows Past Expectations

Last night T-3 Energy Services (TTES) reported earnings which blew away even my wildest expectations. The company reported a 34% increase quarter over quarter in earnings and a 450% increase in earnings year-over-year.   Most importantly, backlog has increased to $44.6 million at March 31, 2006, a 48% increase over December 31, 2005 backlog of $30.1 million and a 325% increase over March 31, 2005 backlog of $10.5 million. We originally estimated $1.20 per share in earnings for 2006, but this number now appears to be too low. Perhaps, something at $1.40-$1.50 per share is more in line.

Network Engines Links Up with NOXS

Today Network Engines (NENG) announced a distribution deal with NOXS. You can access the entire press release by clicking here.  This is huge news for Network Engine investors, despite the fact that the stock barely reacted to the news (which is OK by me, since I just bought more).

Pulse Data Results Are Impressive

This morning Pulse Data (Toronto: PSD.TO or PLSDF.PK or in the US) reported financial results for the March 2006 quarter that far exceeded my expectations. Though the stock is down in Canada, I remain convinced based on these results and as detailed in my original writeup, that Pulse Data´s stock is quite undervalued at current levels, as compared to Seitel (SELA.ob), its chief, and much larger, US competitor. I would note that Seitel´s (SELA.ob) stock, as well as the larger PGS, continue to make new highs, and yet Pulse Data continues to lag. There are various reasons for this, as mentioned later in this post, but I think the reasons are temporary and that as Pulse´s results continue to exceed expectations and certain operational changes are completed, the stock will move alot higher throughout 2006. Overall, the risk/reward in Pulse shares is excellent and there are a few near-term triggers that can significantly increase the stock price.

ActivIdentity Turnaround in the Early Stages

Yesterday, ActivIdentity (ACTI) released earnings results for the March Quarter. As expected the company burned thru more of its cash hoard, but on a more positive note signaled that the cash losses would begin to decline steadily with cash breakeven expected later this year. In addition, the company is guiding towards modest revenue growth next quarter. Finally, we should hear sometime this year what the company plans to do with its $140 million cash balance (down to $135 million by the end of the year). As mentioned in the first write-up, I think the company is way overcapitalized and I hope for a special one-time dividend to be announced.

Internap Insights

Recently I received the following excellent comment from a subscriber concerning Internap (IIP):

"On the question of high costs, have you factored in the possibility that the new FCP 10 gig boxes could really take off in terms of sales? Internap has the best route control product on the market and very little real competition at the high end. These boxes will sell for around 100k when they go on the market in June and Internap's profit margins on those boxes are around 70%. If Internap can really start to reach critical mass in terms of selling these devices, it could significantly alter the gross margins of the business. Also, given that broadband useage will go from 38 to 88 million Americans over the next 6 years or so and video is really starting to take off with Google Video, youtube.com etc. I see the demand for Internap's FCP and IP services growing significantly. Thoughts?"

BlackRock Ventures Gets Acquisition Offer

Congrats to all those who have followed us in on our leading Canadian oil investment, BlackRock Ventures (BVI.to). This morning Shell Canada offered to buy Blackrock for $2.4 billion Canadian or C$24 per share. That makes for a nice day and provides us with about a 150% gain on our initial investment.  The important thing to take away from this acquisition offer is that the smaller independent Canadian companies with even minor Oil Sands exposures are clearly all still good investments given the acquisition appetites of the majors, who flush with cash are looking to snap up long-term producing assets in areas with incredible reserve growth. The Canadian Oil Sands remains, in my opinion, the best place to find this needed reserve growth. There are a few other Oil Sands plays that are rising on the news and we´d be buyers on any weakness. We´ll be holding onto BlackRock until the actual acquisition date gets closer as there is always the chance a higher bid can come in. We still recommend holding onto Suncor (SU), the #1 Oil Sands play.

Internap: Where to Now?

Last night Internap (IIP) delivered financial results that confirmed the strong turnaround at the company. From my perspective the most important part of the financial release was the increased revenue growth guidance for 2006, since the meager revenue growth projected last quarter was a factor in limiting the upside valuation for the company.

Web.com Continues to Make Progress

Today, Web.com announced results for their first quarter which were pretty much in line with my expectations. As is the case now with the vast majority of public companies, the financial numbers are completely confusing, due to charges related to stock options. The company claims to have had positive income after adjusting for stock option expenses, but in looking at the the company´s balance sheet  (i.e. actual cash position), it appears as if the company burned thru a bit of cash this quarter. However, the amount of cash burn is clearly insignificant, and I would say that the minimal cash burn is a great accomplishment for the new management team at Web.com, given the prior history of the company (formerly Interland).

Network Engines (NENG) Still Not Revved Up

Yesterday, Network Engines (NENG) reported quarterly results that were basically in line with expectations. Despite the fact that the stock is off about 25% from its high, I still believe that my basic investment thesis outlined in prior posts is intact and the I think the risk/reward is still favorable at current prices. Incidentally, I have bought more shares of NENG during the recent sell-off.