Friday, November 5, 2010

Live Person ( LPSN - Nasdaq ) - Follow-up Report

Live Person (LPSN $9.25) reported excellent on target Q3 results.  Earnings improved 17% to $.07 a share, excluding non cash stock option and intangible amortization expenses.  (Refer to "Accounting Notes.")  Revenues advanced 27% to $28.2 million.  Eighteen large new accounts were added.  Existing relationships were expanded.  And the fledgling mid-market unit built momentum, widening its percentage of total revenue.  We continue to estimate full year earnings will reach $.30 a share on sales of $110 million.

Above average growth is likely to be maintained in 2011.  But it now appears the pace may be less robust than previously thought.  Live Person expanded its sales force earlier in 2010.  The benefits from that investment are starting to materialize.  Competition is becoming more prominent, though.  And that trend may continue in upcoming periods.  We are reducing our 2011 sales estimate to $140 million from $150 million.  That still represents growth of 27% year to year.  Expenses are likely to increase less rapidly than sales, enabling income to outpace the improvement in sales.  Nonetheless, we are reducing our earnings estimate by a nickel to $.40 a share (+33%).

Live Person remains a prospective takeover candidate.  It's unclear how large a premium the company might command from the stock's current level, though.  Downside risk appears limited if an offer fails to emerge, assuming financial performance is consistent with our estimates.  Upside potential could be constrained, too, by an already lofty valuation combined with increasing competition and the possibility of a slowdown in capital spending by corporations next year.  Note - Live Person's President announced yesterday that he plans to leave the company in early 2011.  He might just see the handwriting on the wall, concluding the company is certain to be acquired and that he might as well get a jump on his next career.  Or, maybe he envisions a more difficult environment on the horizon.  Aggressive investors are advised to reduce or eliminate positions, at least for the time being.

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