As Web Expands, Web-Hoster NaviSite Plows On Full Speed Ahead - TheStreet

As great as the Internet may be, it ain't always easy to keep it humming. That's something

Yahoo!

(YHOO)

learned Monday as the mysterious ways of technology wreaked havoc with its site.

Well, as the old saying goes, one site's plight is another's fortune. Or something like that.

NaviSite

(NAVI) - Get Report

, an application service provider and Web-hoster based in Andover, Mass., has seen its stock rise more than 42 points in the last five days. It closed Monday at 148, after gaining 9 points, or 6%. Since the beginning of the year, the stock is up 99%.

The reason, an analyst and an investor in the space say, is that more and more companies are realizing that it's just plain easier to leave the blood-and-guts stuff of the Internet to someone else. This has made the ASP and Web-hosting business particularly attractive, as business-to-consumer and business-to-business Internet companies scramble to get their sites up and running -- and keep them there -- to attain the all-important first-mover advantage.

The Outsourcing

"It takes a lot of time and skill and knowledgeable personnel to make sure your Web server is running smoothly," says Eric Efron, manager of the

USAA

(USAUX) - Get Report

Aggressive Growth fund, which counts NaviSite among its holdings. "What people are starting to say is, maybe it's better to outsource these operations to people who are data-source experts."

That means just as companies such as

Cisco

(CSCO) - Get Report

benefited from laying the physical pipes for the Internet, companies like NaviSite should benefit from storing and managing the stuff that moves along those pipes. In a phrase, these "infrastructure service providers" are poised to see tremendous growth in the next few years. Other companies in the space include

Exodus Communications

(EXDS)

,

Concentric Network

(CNCX)

,

Digital Island

(ISLD)

and

Verio

(VRIO)

.

Richard Juarez, an analyst for

Robertson Stephens

, estimates that by 2001, the global market for these kinds of outsourcing services will be $36 billion, up from $15 billion last year. That growth, in part, will come from the notoriously difficult task that companies face finding and keeping smart information-technology professionals.

The Enormousness

"The fact of the matter is that the cost of doing this stuff internally is enormous -- just to hire and retain the staff," says Juarez, who reiterated his buy rating on the stock Friday and whose firm has done underwriting for the company. "It's four-and-a-half times more cost-effective to use outsource services than it is for the typical company to develop this stuff in-house."

In that market, Juarez sees NaviSite, which recently opened a 67,000-square-foot data center in San Jose, Calif., as set to dominate.

"My sources tell me that that space will be filled in 12 months or less," says Juarez. "People are saying this is going to be a category gorilla in the outsourcing application area."

On Monday, NaviSite announced that it had inked agreements to provide content-distribution services to six new customers, including

AltaVista

.

The Trajectory

To be sure, NaviSite is far from being a King Kong in the dot-com jungle at this point. A majority-owned member of the

CMGI

(CMGI)

family of companies, NaviSite had just $5.8 million in revenue in its latest quarter and racked up losses of more than $10.5 million. Yet it has a $4.2 billion market cap.

But as with everything else on the Internet, the market appears to be judging NaviSite on its potential, not its past.

"Even at these levels, people have decided they want to pursue it," Juarez says. "I think it will continue on its positive trajectory."