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Art Tech Seen as Buying Opportunity


By Hal Plotkin
Silicon Valley Correspondent

E-commerce enabler Art Technology Group Inc. {ARTG} chief executive officer Jeet Singh says Hewlett-Packard Co.’s {HWP} anticipated acquisition of Art-reseller PricewaterhouseCoopers’ consulting business, if completed, would be welcome news for this already-profitable firm.

Art’s stock has fallen over the past few sessions, despite several upgrades that were issued right after the company concluded a well-attended analyst meeting early last week.


Art Technology Group 10-day stock performance chart

The stock’s slide can be attributed to several factors that are largely seen as extrinsic to the company. They include fallout from the recent earnings warning by Viant Corp. {VIAN}, which competes in some markets, and fears that H-P’s possible takeover of PricewaterhouseCoopers’ consulting business might diminish the latter firm’s reliance on Art’s Dynamo line of e-commerce applications.

But analysts and the company CEO both say such worries are misplaced, noting that unlike many of its competitors, ATG turned profitable last quarter. The company, which is expected to continue to post positive earnings going forward, is widely regarded as one of the top suppliers of e-commerce infrastructure software and services, with a blue-chip roster of clients ranging from Fidelity Investments to Walgreen Co. {WAG}.

In a key alliance, PricewaterhouseCoopers now has 205 members of its e-business integration staff dedicated to installing and integrating Art products and was anticipating increasing that number to 600 by June 2001, according to a presentation the company made at the recent Art analyst meeting.

The analyst meeting, however, took place before H-P said it was contemplating purchasing PricewaterhouseCoopers’ consulting assets. The durability of Art’s relationship with PricewaterhouseCoopers could be tested if the deal is consummated and H-P later decides to use competing e-commerce software applications.

“I don’t see any downside to the news about Hewlett-Packard,” Singh says. “I would see it more as a way for us to jump-start our H-P relationship.”

Singh says that competing with his marketing and system integration partners is nothing new for Art.

“IBM {IBM} has a directly competitive product, but IBM Global Services is one of our best partners,” Singh notes. “It’s really more about doing what’s best for the customer.”

Singh acknowledges that PricewaterhouseCoopers was one of Art’s top-five system integrator partners. But he says Art has already created a good working relationship with Hewlett-Packard, which makes him confident the two firms will work well together in the future.

The executive also adds that his company has similar relationships with more than 150 other system integration and hardware firms.

“We value our relationship with PricewaterhouseCoopers very much, but overall, it doesn’t account for more than a few percent of revenue,” Singh says.

“One of the values that PricewaterhouseCoopers brings to the table are the relationships they have with top software vendors,” says Tim Klasell, an analyst with Thomas Weisel Partners in San Francisco. “H-P is trying to beef up their services, and ATG fits very nicely into that.”

Klasell has a $150 12-month price target on Art’s stock, which he rates “strong buy.” The analyst says he came away from last week’s analyst meeting convinced the company is on track to meet or beat expectations. Like other analysts at the event, he says he was particularly impressed with Art’s latest product, dubbed “Scenario,” which sells for $30,000. Scenario takes online personalization to the next level, Klasell says, by giving companies the ability to form deeper relationships with their online visitors.

“They are combining personalization with process automation,” Singh says. “We think it’s an extremely powerful approach.”

Banc of America Securities analyst Greg Vogel also raised his revenue and earnings forecast for Art immediately following last week’s analyst gathering. The new numbers led to an increase in his 12-month price target on the stock to 140 from 90, though the BofA analyst said at the time that the stock was “fully priced near term” at 23 times his revised 2001 earnings forecast when it was trading at about 93 a share last week.

“We’d be looking for a little bit more of a pullback before we issued an upgrade,” says Jason Maynard, an analyst at First Union Securities in San Francisco.

Maynard has a $105 12-to-18 month price target on the stock, along with a “buy” rating, his firm’s second-highest recommendation.

“I do think the recent pullback in the stock’s price is not justified,” Maynard says. “Any kind of extrapolating about Viant’s results, which is a completely different story, or worries about PricewaterhouseCoopers, is probably overdone.”

Maynard credits Singh with bringing the company to profitability and with being the moving force behind some of the Internet’s most-popular and easy-to-use commercial Web sites.

“My friends and contacts on the system-integration side of the business tell me that ATG builds some of the best application platforms out there,” Klasell says. “The company has a lot of momentum.”

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