Shares in FutureLink Corp. have seesawed in recent weeks in a volatile tech market, but that’s not dissuading true believers in the research community who say the application service provider model is a long way from peaking.
Despite a deluge of announcements in recent weeks from a gamut of companies that plan to enter FutureLink’s red-hot sector, analysts are maintaining their “strong buy” and “buy” recommendations for the money-losing ASP pioneer.
Application service providers, or ASPs, host computer software for customers who access it over high-speed Internet connections or private data lines. The model is designed to free corporate users from the burdens of maintaining and upgrading the software on individual computers. Though unproven commercially, the concept has become a hit for companies willing to provide the services.
After sailing from less than $2 per share last March to more than $35 per share in November, FutureLink’s stock has swung wildly between $19 and $25 per share since.
Company officials would not comment, citing the standard “quiet period” mandated after a significant securities filing.
And revenue jumped from $1.6 million from its third quarter to $8.6 million for its fourth.
The company raised $18 million this month through warrants granted to Pequot Capital Management, Inc. and JDS Capital Management Inc. last year and is looking to sell 5 million shares in a secondary offering.
Despite silence from executives on the issue, there’s little doubt that much of the money will be used to extend an acquisition spree that has totaled eight companies in the past year. The most recent was the purchase this month of New York-based MicroLAN Systems Inc. and two sister companies.
According to Peter Giglio, an analyst for stock brokerage Gerard Klauer Mattison, FutureLink will excel because of a strong management team and experience in the telecommunications industry.
“Relative to the other ASP players, they have a good strategy of buying up a number of integrators who are very close to the customer and really know how to do server-based computing from a corporate perspective,” he said. And eventually, he added, those acquired companies will be key to moving the applications off of the corporate servers onto FutureLink’s ASP servers.
Giglio is rating the stock a “buy,” his firm’s highest recommendation.
According to Scottsdale, Ariz.-based Cahners In-Stat Group, small businesses will spend more than $7 billion on ASP services by 2004, from about $10 million now. The research group predicts that most ASP offerings will come as part of a broadband Internet and telecommunications service.
For FutureLink, that growth hasn’t come without its share of turmoil, however.
FutureLink is suing Chell.com, a company created by former manager Cameron Chell for $54 million. Chell has countersued for $28 million. And last month, FutureLink settled a separate suit against SmallCaps Online Group. n
