BladeLogic Inc. (BLOG)
Its an increasingly digital world and with businesses demanding more technological functionality and flexibility, IT departments are becoming swamped and over worked. With the proliferation of affordable servers, the number of servers employed by businesses have proliferated and the burden of managing these additional servers has risen in stride. IT departments often seek to isolate points of possible failure so that one machine cannot significantly alter the entire business if it goes down. This has led to a “one application - one server” approach that exacerbates the server sprawl problem.
BladeLogic (BLOG) has a solution through its suite of products which apply configurations and updates to many servers automatically. The idea is that a company employing BLOG’s technology can save on their personnel costs as the system automates the updates and maintenance necessary for multiple servers and also allows staff to upload new applications to these multiple servers through a single automated process. Customers of BLOG have gven the company rave reviews stating that they were able to use BLOG’s products to significantly cut work staff (or simply avoid increasing the staff during concurrent growth in server needs) which reduced overall expenses.
BLOG has spent a good bit of time and resources recruiting the very best sales force they can muster. Headcount has more than doubled in the last year and most of these additional bodies are hitting the road and soliciting business. The company has more than 200 clients including 10 of the top 50 global company as measured by Fortune. In the third quarter (company has fiscal year end at the end of September), the average contract was signed for $310,000. This compares to $264,000 last year and underscores the fact that the company is becoming more and more successful in landing large clients. Having blue chip companies on its client list actually begets more business as this client list becomes a marketing tool, showing prospects that their peers have voted in confidence of BLOG.
The most recent product was designed to integrate with Vmware’s ESX server. The informal partnership with Vmware Inc (VMW) could open more doors as VMW has been extremely successful in the enterprise software field. There is speculation that BLOG could be a takeout candidate for a larger software provider. It is not too difficult to see how an established company could take products designed by BLOG and sell them to an existing footprint that is likely much larger than one already covered by BLOG. Opsware is a competitor of BladeLogic and recently agreed to be purchased by Hewlett Packard (HPQ). OPSW went for an 8x multiple on expected 2008 sales.
BLOG has an attractive balance sheet with no debt on the books. The IPO in July allowed the company to raise $66.1m while at the same time the company is cash flow positive. Cash could be used for small acquisitions in the future as the company seeks to round out its product offering. Currently, the product suite appears to have the greatest functionality when compared to competitors, and it is offered in modular form so that clients can purchase the whole suite or simply the portions it sees the most use for.
While not cheap, the stock appears to have good support trading well above the $17 offering price and recently breaking out of its first technical base. It is difficult to value the company based on earnings as they have only recently become profitable, but looking at the prospects for earnings growth, and the appeal they have with customers who save significant payroll expenses, one can imagine that the future is quite bright for this young company.
FD: Author has a long position in BLOG
