LivePerson: The Voice Behind the Servers

04/23/2012 7:45 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

Technology is a truly wondrous thing, but we're still simple analog, carbon-based life forms, so a little human interaction can go a long way for a company...and a stock, writes Rob DeFrancesco of Tech Stock Prospector.

Shares of LivePerson (LPSN) are up 60% since I profiled the company a year ago.

At the time, Fidelity and Gilder Gagnon Howe were the two largest investors in this provider of online engagement solutions that help companies offer real-time assistance and expert advice on Web sites and in contact centers.

Since then, the shareholder base has shifted a bit, with Wellington Management becoming the No. 1 holder after adding 494,854 shares in the fourth quarter (it now owns 3.3 million shares). Fidelity moved to sixth place, having cut its position to 2 million shares from 4.19 million shares in the year-ago quarter.

While Gilder Gagnon is still in the No. 2 spot, the firm trimmed its position in Q4 by 36%, selling off 1.8 million shares. Other top holders include Lord Abbett (2.3 million shares), Blackrock Fund Advisors (2.1 million shares), and Federated Investors (1.49 million shares).

In Q4, two firms started sizable positions in LivePerson: Harvest Capital Partners ($513 million in long equity assets/49% tech weighting) and Columbia Partners ($2.1 billion in long equity assets/23% tech weighting) bought 461,349 shares and 435,455 shares, respectively.

At the end of February, LivePerson shares hit a new 52-week high of $16.53, up sharply from the 2011 closing price of $12.74. The recent increase in acquisition activity among companies in the software-as-a-service (SaaS) segment has helped boost LivePerson shares.

Also, the company has been putting up some good numbers to justify the strength in the stock. For 2011, revenue rose 21% to $133.1 million. In Q4, per-share earnings of ten cents matched the consensus estimate, and revenue of $36.5 million was up 22%. Bookings increased 22% sequentially to $6.3 million.

The company signed 123 large deals, vs. 102 in Q3. LivePerson added 25 new enterprise and mid-market customers, including BMC Software (BMC) and a major auto manufacturer. It also continued to expand its relationships with key customers, including Hewlett-Packard (HPQ) and Petco.

The average Q4 deal size was $51,000. For new customers signing up for initial deployments, the average deal totaled $41,000, while the average deal size for follow-on business with existing customers was $53,000. It is a positive sign that existing customers tend to spend more, because they are familiar with LivePerson's offerings and happy with the results.

LivePerson has 23 customers spending more than $1 million annualized, up from 16 in the year-ago quarter. There is one customer above $5 million in annualized spending, and one customer above $10 million. The company's key verticals: financial services, telecom, retail, and technology.

For 2012, LivePerson sees EPS of 40 cents to 44 cents (the consensus was 42 cents) on revenue of $160 million to $165 million, vs. the consensus of $161.7 million. Management said it plans to continue to invest in building out the sales force.

The company ended last year with 25 enterprise-focused sales reps and 12 in the mid-market customer segment. Several salespeople have already been added in Q1. By the end of the year, the goal is to have a total of 50 reps.

The focus on the sales side is clearly evident in the hiring of LivePerson's new global head of sales, Erica Schultz, who was group VP of Oracle's (ORCL) SaaS unit and led that company's CRM OnDemand solution.

On Schultz's watch, Oracle CRM OnDemand became the fastest growing application product line and the fastest growing SaaS CRM solution in the market. During her 16 years at Oracle, Schultz led operations from Internet sales to mid-market sales in North America and India.

LivePerson is benefiting from social networking increasingly moving into the enterprise. On the Q4 conference call, LivePerson CEO Robert LoCascio said the company is well positioned to take advantage of this social-enterprise movement; more businesses want to connect with their customers online in real time. LivePerson provides the technology (everything from chat to click-to-call) to make this happen.

The company is moving into new verticals (government) and expanding in growth geographies (including Latin America and Australia).

One of the company's newest solutions is a business-intelligence tool called Insights, which is used to analyze unstructured chat transcripts between customers and customer service reps.

Transcripts of chat conversations often reveal common keywords, complaints, suggestions and buying patterns that can be used in product marketing and development. Data patterns and trends are visualized via Web-based dashboards

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