For most Internet companies, the focus these days is cash. For Inktomi (INKT) , it's cache.
On the Barrel
The Internet software firm, scheduled to report its fourth-quarter financial results after the market's close Thursday, has seen its stock suffer over the past few months, partly out of concern over its search technology business. But, says analyst Christopher Russ of
First Union Securities
, out of all the numbers that Inktomi will be providing, the ones on which investors will be focusing relate to its caching business -- software that enables Internet service providers, companies with internal networks and others on the Net to speed up content delivery and simultaneously cut down the volume of data traffic over a network. Caching "is really the most important area," Russ says.
Inktomi's stock, which hit a high of $241.50 earlier this year, closed at $83.81 Wednesday afternoon, up $4.06.
Search and Replace
Although Inktomi was first known for its search engine, and though its stock suffers a hit each time the firm loses a search customer, the cache business is where the money is. It accounts for 70% of the firm's revenue, explains Russ, and 90% of its operating profits. First Union hasn't done underwriting for Inktomi; Russ has a buy, his firm's second-highest rating, on the stock.
And if search seemed a crucial business in the earlier years of the Internet -- what with
competing against such rivals as
-- technologies such as caching designed to accommodate a growing amount of data being transmitted over the Internet seem to be crucial now.
Several trends appear to be driving that perception, starting with the ongoing addition of people using the Internet and companies setting up Web sites and internal networks based on Internet standards. The amount of audio and video transmitted over the Web is steadily growing, thanks in part to events such as Wednesday's release of the latest version of
user software, which incorporates a built-in multimedia player. (Inktomi itself is in the process of acquiring
, a company focused on streaming live broadcasts over the Internet.)
Moreover, Inktomi has further opportunity in the growth of wireless devices used to access the Internet, worth as much as $200 million in revenue for the company by 2003, according to Randy Scherago, analyst at
Prudential Volpe Technology Group
. Scherago, whose firm hasn't done underwriting for Inktomi, has an accumulate rating on the stock.
But that's off in the distance. On Thursday, Russ and others will be paying attention to results for the quarter ended Sept. 30. Russ estimates total revenue will be $71.5 million, compared to $27.1 million in the fourth fiscal quarter of 1999. For caching revenue, built on Inktomi's Traffic Server product, he expects $50.8 million, at the very least. "If they only met that number, it would be a disappointment," he says. The consensus of analysts surveyed by
First Call/Thomson Financial
is that Inktomi will report earnings, excluding goodwill and acquisition-related costs, of a nickel per share, reversing a 5-cent loss one year earlier.