COMPANY: WARP 9
Summary:NanoCap Gems is profiling Warp 9, symbol WNYN. The company’s shares currently sell for less than a penny, and our goal for this company is over 5 cents a share in the next 12 months. The company is coming into historically, its best performing quarter, and certain factors have resulted in what we feel makes this a tremendous value right now.
Description: Warp 9, Inc. provides e-commerce platforms and services for the catalog and retail industry. Its suite of software platforms are designed to help online retailers maximize the Internet channel by using Warp 9’s technologies for online catalogs, e-mail marketing campaigns, and interactive visual merchandising. The company offers its products on a fully managed software-as-a-service model. Warp 9 primarily offers two proprietary software systems, Warp 9 Internet Commerce System, an enterprise-grade software system that enables catalogers and retailers to expand their operation to the Internet with customizable features for product presentation and store management; and Warp 9 Email Marketing System, a Web-based email campaign and list management system. In addition, Warp 9’s strategic marketing consultants develop, deliver, and manage programs, such as paid search advertising, search engine optimization, affiliate marketing, store optimization, and email optimization. The company was founded in 1999 and is based in Santa Barbara, California. Its CEO is Harinder Dillon.
Financial Highlights: PE: 4 Price to Sales: .63 Market Cap: 2 million Quarterly Revenue Growth: 40% 52 Week High: 3 cent 52week low: .006 cents Cash Flow: Positive, Quarter: Sep. 07
Commentary: We have followed this company for years, as they have morphed their business model from a software security company, called Roaming Messenger, to now an on-line catalog/website enhancer, through visual merchandising. At one time, this company possess a “killer app” in the security industry, and have now sort of spun off this idea, to a company called Zingerang Software(incidentally, a startup company founded by Michael Chuises, former Roaming Messenger Vice-President of Engineering. This deal seems pretty good for Warp 9, although this replaces an earlier deal that was lucrative as well. But it allows WNYN to share in future royalties, while keeping the patents.) Warp 9 now competes in the internet space with its application software, and while a “baby” in this industry, it has some resilience to the economic slowdown, with its pricing model. Warp 9 earns fee income from its solid retail base, a real key being in that it includes fixed monthly charges, and variable fees based on the sales volume of their clients’ e-commerce websites. Unlike traditional software companies that sell software on a perpetual license where quarterly and annual revenues are quite difficult to predict, their SaaS model spreads the collection of contract revenue over several quarters or years and makes the revenues more predictable for a longer period of time. With its most recent quarter in the books, the company made over 2.2 million in revenues in fiscal ’07 , comparing quite favorably to ’06, where the company made 1.3 million, a significant ramp-up. The most recent quarter saw a jump in revenues of 40%, from 433,000 to 604,000. Cash on hand went from over $100,000 to over $500,000 this past quarter. The company seemed to have turned a corner, as the company finished with a cash flow positive quarter, and a price to earnings of 4. Yes….4. An aggressive PE for a technology company could easily be in the 30’s and 40’s, or negative in fact. Cash flow positive, low PE, revenue ramp-up, increasing cash, unheard of in our opinion for a company this size. Just what gives here? Digging deeper, the company consummated a convertible debt offering with Cornell Capital Partner, LP. in 2005, resulting in dilution of its shares. In the quarter ending September 07 for example, the company issued over 17 million shares in exchange for Cornell’s convertibles. This is bound to way on the share price of the company as this goes on, and this we feel is the main reason for the price suppression. The CEO has to figure a solution here, as this would really help the share price maintain some stability. Still, it is way over done, in our opinion, resulting in a great opportunity for investors.
NanoCap Gem’s conclusion: Warp 9 has a market cap of 2 million, a very tiny speck in the internet industry. And it sells for just .63 time’s sales, way, way undervalued. With ramping-up revenues, cash flow positive, and a positive price to earnings, this company could easily be selling for 6 or 7 times sales, and a price to earnings of say 40. This would get you a price of nearly 8 cents! Although highly speculative, we feel this company is tremendously undervalued, and the word on the street will get this company noticed eventually , helping the share price in the near future, if not later. We placed a very doable 5 cent price tag on this company, within 12 months. Historically, the winter quarter has been the highest for this company and industry, and NanoCap Gems feel’s nows the time to accumulate Warp 9’s shares, with a significant price increase, potentially coming next quarter. We feel the price is near a bottom, with tremendous upside in the next 12 months!
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