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Monday, September 27, 2004

I've Just Met a Girl Named "Liquidity"

WebSideStory, a small web analytics firm that received a surprising amount of venture capital a few years ago, is set to go public, offering 4.4 million shares at $8-9 million per share.

In the wake of GOOG's sector-defining IPO, it makes perfect sense. As online advertising goes, so goes web analytics. As small as WebSideStory is, its minor liquidity event is no doubt roughly proportional to its importance in the grand scheme of things, riding the current wave.

Certainly, established players in the space, such as publicly-traded NetIQ (owner of WebTrends), have been in acquisition mode, snapping up useful tools and trying to reach a position of relative dominance. Whether current improving conditions bode well for a turnaround in the fortunes of companies like this remains to be seen. Impressive client lists and awards don't change the fact that many in the sector have been very good at burning through investors' cash with little to show for it.

One does wonder why WebSideStory has been treading water / going sideways for so many years and why it continues to show unimpressive financials even in a hot market for its products. It's a long time since this company was just a maker of small-time logfile analysis software (including the famous free one that required users to put HitBox graphics on the site). Since the new company looks nothing at all like the old one, it's likely that the trajectory of WebSideStory was funding-driven, not market-driven. Not being overly familiar with the company, it's nonetheless evident from reading bios of company executives that many arrived on the scene very recently. One has previous tenure at Keylime Software and NetIQ; the CEO and some others have been brought in from unrelated software concerns. The CTO has been with the company since 1998, however. Here's hoping he owns plenty of shares.

WebSideStory would probably be well-advised to use their stock as currency to snap up related companies which have strong products and financials that are sounder than, well, WebSideStory's. Maybe a reverse-takeover-style acquisition of hard-charging Omniture might do the trick.

Posted by Andrew Goodman




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