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Enterprise Software - Friday, September 26, 2008

Globalizing Your Portfolio With Lionbridge

While the staff at tech:stocker has mixed political views, one common idea unites us right now: we need a bailout and we needed it yesterday. We actually needed this bailout two weeks ago but our government is certainly not a proactive one, especially when it comes to Wall Street. Let's be perfectly honest here in hopes of clearing any misconceptions people might have: if this bailout doesn't happen by Sunday night, Monday morning will make Black Monday 1987 look like a minor problem. We've spoken with people at several financial firms and the bailout money is desperately needed. If you don't believe this is true, put your money where your mouth is and start buying bank stocks immediately. Otherwise, get behind whatever plan Washington derives and let's move forward.

We decided to end the week with a company we are extremely familiar with and think is a relatively safe investment, Lionbridge Technologies (LIOX:NASDAQ).

Having worked in the web globalization space, we are extremely familiar with Lionbridge. When they took their company public in 1999, we cheered as their stock rose quickly thinking our company would crush them in a few years with our own IPO. That didn't happen. While Lionbridge's stock dropped below their IPO offering, our company stock ended up not being worth the paper it was printed on. Even though the stock was low, we knew the market potential for globalization services and saw Lionbridge as having the potential to capture the "lion's share" of the market.

Our issues with Lionbridge are fairly simple. First, the company's CEO Rory Cowan is a stubborn New Englander who seems too determined to make the company successful. Under a more strategic CEO, we believe this company could be a lot further along as the opportunity for a company like Lionbridge is enormous. While the company's revenues have been growing, so have the costs of doing business. Mr. Cowan definitely needs to work with his CFO to grow investor confidence by ensuring that revenues and costs don't increase in tandem. To Mr. Cowan's credit, we've seen a lot of companies enter this space and quietly disappear. He should also be given credit for some strategic acquisitions even though they haven't taken the company to the next level but helped them easily acquire more customers.

The second issue we have with Lionbridge is that they have failed to take a thought leadership position in Web globalization. Sales in the sector require a tremendous amount of customer education and Lionbridge has consistently underachieved in this area. With a better focus on improving their customer's knowledge base, we believe they could expand their revenues from existing customers with minimal expenditure.

And Lionbridge should be looking to increase their revenues from current clients as globalization continues to be a priority for many companies and the company has an impressive customer list that includes Deutsche Bank (DB:NYSE), Bank of America (BAC:NYSE), Cisco (CSCO:NASDAQ), IBM (IBM:NYSE), and eBay (EBAY:NASDAQ).

This customer list is part of our confidence in Lionbridge. Another reason for liking this stock is that they are finally making a profit. Even though it was only $.02 per share this past quarter, it is still a profit. We believe that with some fiscal restraint, the company should continue to improve its profits despite facing challenges from the global economy.

We are putting a buy on this stock and if Lionbridge brought in a new CEO, we would put an even stronger buy rating on this company. Our target over the next 12 months is $4 per share which should make everyone fans of Web globalization.