Omniture ( OMTR) is cementing its market dominance. On Thursday, the Web analytics company said it would acquire rival Visual Sciences ( VSCN) for $394 million in a cash-and-stock deal. Omniture also forecast better-than-expected third-quarter results. The company's move for Visual Sciences extends Omniture's lead in the rapidly growing high-end analytics market and was met with a wave of support on Wall Street. The stock was recently up more than 14% to $35.96. These gains follow a run-up of 120% since the start of the year. The deal makes sense from both a financial and strategic perspective, Pacific Crest securities analyst Chad Bartley wrote in a research note Friday. Both Omniture and Visual Sciences use an on-demand software model, which could lead to substantial cost savings. Bringing Visual Sciences customers to Omniture's platform and up-selling them could also open the door for more revenue and earnings. The move will bring more than 4,000 new customers to Omniture, Bartley noted. And it could take away pressure on Omniture to lower prices. Indeed, the deal was seen as promising enough to have some analysts change their opinion on Omniture. ThinkEquity analyst Michael Huang upgraded the stock to a buy with a $38 price target because of the deal, saying that it would allow Omniture to out-muscle the competition.
"Omniture, we believe, adds significant scale which could serve as a distinct competitive advantage versus competition, enabling the company to out market, out innovate, and out support competitors, all while expanding profitability," Huang wrote in a research note. Think Equity makes a market in Omniture shares. The acquisition also bolsters the credibility of Omniture's management team. It should ease investor doubts about the company's CEO, Joshua James, who is still in his mid-30s and whose relative youth and lack of experience
have raised flags for analysts in the past. Still, whether investors should get behind this pricey stock remains a different question. It now trade at about 93 times forward earnings and has a lofty price-over-earnings-to-growth ratio of 4.3. Omniture could also be pressured by the escalating Internet turf war between Google ( GOOG) and Microsoft ( MSFT). Both giants offer free versions of Web analytics tools, albeit ones that are much less sophisticated than Omniture's products. Google and Microsoft are likely to invest more heavily in their free products in the hope of one-upping each other. And that could ultimately put pressure on Omniture.