Stocks Of Vendors Tracking Worse Than Indexes

March 1, 2009       Mark Hrywna      

Last year won’t be one that most investors are likely to brag about at cocktail parties, unless it’s about whose portfolios lost the least value. The 2008 market left few on the plus side as the Dow shed more than a third of its value while the NASDAQ was off almost 42 percent.

If the 13 public companies that have a substantial position in the charitable market as tracked by The NonProfit Times were lumped together as an investment portfolio, it would have lost 45 percent of its overall value during 2008.

You can hardly call it a “winner,” but being down almost 22 percent, Oracle was the stock that lost the least in 2008 among the group. Taking into account that Quebecor World filed for bankruptcy in January 2008, and was down 99 percent, the next worst performer of 2008 was Harte-Hanks in San Antonio, Texas, dropping 64 percent.

Taking a longer view, compared to where they closed three years ago, only two of the firms are on the positive side: Alliance Data, 31 percent, and Oracle, 45 percent. A third, Salesforce.com, is nearly unchanged, down 4 cents or 0.12 percent from its 2005 close. Overall, the 13 companies are off by 42 percent between year-end 2005 and 2008, worse than the NASDAQ (-28 percent), and the Dow (-18 percent).

Looking back five years, to the close of 2003, Alliance Data (+68 percent), Blackbaud (+58), Oracle (+34) and Salesforce.com (+113) were the only stocks that have posted positive gains (Blackbaud opened in July 2004). Otherwise, a nonprofit portfolio would have lost 20 percent of its value since then, in the neighborhood of the three major indices. Examining the one-year, three-year and five-year glances, the 13 companies as a whole most closely tracked with the NASDAQ, where most of them trade.

With few exceptions, most of the companies in The NPT’s index have but a small portion of their business within nonprofits. For instance, Alliance Data’s subsidiary Epsilon of Wakefield, Mass., is a full-service marketing firm whose clients include nonprofits, while fewer than 10 percent of Saleforce.com’s 38,000 clients are nonprofits.

Those focusing their business on nonprofits can be found within the software sector and last year that space shrank some more.ÊA year after significant consolidation in the industry, Blackbaud acquired San Diego-based rival Kintera for $1.12 a share, or $46 million. The purchase continued a string of acquisitions for the Charleston, S.C. software provider, which picked up eTapestry of Greenfield, Ind., for $25 million, and Cambridge, Mass.-based Target Analytics Group for $60 million, both in 2007. Privately-held Convio added to the market contraction by acquiring GetActive early that year for $18 million.

Software provider Serenic also focuses almost solely on nonprofits. The Edmonton, Alberta-based financial software provider trades on the Frankfurt and Toronto stock exchanges and closed 2008 at $0.21 per share, down 62 percent. The firm, which also has operations in Lakewood, Colo., was ranked No. 300 in November on Deloitte’s 2008 Technology Fast 500. The Fast 500, a ranking of the fastest growing technology companies in North America, is based on percentage of fiscal year revenue growth over five years (2003-07), which grew 522 percent at Serenic. The firm also ranked No. 31 on Canadian Technology Fast 50, a similar ranking of Candian tech companies.

Blackbaud reported total revenue of almost $303 million last year, an increase of 18 percent compared with the $257 million in 2007. “Even in a healthy economic environment, this would be considered a successful year and speaks to the resiliency of our company, business model, customer base and the experienced management team,” said President and CEO Marc Chardon during Blackbaud’s year-end earnings call. Sales of eTapestry grew almost 20 percent, he said.

Maxim Group initiated coverage in January on Blackbaud with a sell rating at $12.76 per share and a target price of $10. WR Hambrecht downgraded the stock from buy to hold in late January.

In an investment note, Matthew Weiss, senior equity analyst at Maxim Group, called Blackbaud “a viable takeover candidate” thanks to significant maintenance revenue from a large customer base in a niche market. He also cited a belief that budgets could contract in 2009 and turn nonprofits away from technology spendding. A similar sentiment in a research report by Jefferies & Co. last year drew a retort from William Blair & Co. analysts that Blackbaud’s market is resilient thanks to the history of nonprofit donation growth, even in downturns.

“Not unlike many other companies, we saw this selling environment become more difficult in each successive quarter during 2008, as a result of the deterioration of the economic environment,” Chardon said. “From an overall perspective, there is a general sense of caution amongst buyers as everyone is trying to forecast the depth, breadth and length of the current recession,” he said. Chardon added that “it’s appropriate to continue planning and managing our business in a manner that assumes that the macroeconomic environment does not materially improve during 2009.” He would consider a year with no to very low “single-digit organic growth” to be successful.

Convio had been trying to join Blackbaud as a public company but pulled its $86-million Initial Public Offering (IPO) this past August due to stock market volatility. Founded in 1999, the firm filed for an IPO in August 2007 and had positive cash flow that quarter for the first time since acquiring Berkeley, Calif.-based GetActive earlier that year.

As for whether Austin, Tex.-based Convio again pursues going public, a spokesman said it’s completely dependent on the market and the company’s continued performance. Convio processed almost $777 million in online donations for clients last year, up from about $400 million the previous year, and finished 2008 with $3 million in operating cash flow on record revenue of $57 million, according to the company.

The software sector wasn’t the only one that made noise in 2008. Acxiom Corp. of Little Rock, Ark., which specializes in data warehousing and integration, acquired Quinetix LLC in November. The Rochester, N.Y.-based analytics and predictive modeling firm worked with Acxiom for five years, servicing clients in banking, hospitality and media. The acquisition came weeks before Acxiom suspended its quarterly dividend and launched a $50-million stock repurchase program.

Formerly infoUSA, Omaha, Neb.-based Info Group owns four list brokerage and management companies involved in the sector: Direct Media, which it acquired in January 2008, Millard, Triplex and Walter Karl. Founder Vin Gupta was ousted as chief executive last year after a shareholder lawsuit regarding his spending. He later suggested a sale or acquiring all outstanding shares to take the company private. He owned about 40 percent of the outstanding stock.

InfoGroup has said the recession and tight credit markets make it difficult to get a good price in a sale and the board is confident in the company’s current plan. That idea might be limited by terms of the settlement, which prohibits Gupta from trying to wage a proxy contest before 2010 or trying to undo reforms put in place as part of the settlement before 2013. He pledged to reimburse InfoGroup $9 million over five years, but remained on the company’s board and received $10 million in severance. NPT