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Sapient Corp. Message Board

  • CaptainVB CaptainVB Apr 12, 1999 6:13 PM Flag

    Not so close as that...


    << As an owner of
    Primix (PMIX/$2 1/2)I thought I would post this for SAPE
    owners, in the wake of SAPE's purchase of Adjacency. SAPE
    paid about $1 million per employee for Adjacancy,
    which equated to about 12 times trailing revenue.
    Adjacancy has a sweet front end development capability, but
    I noticed that Advis did some of their back-end
    integration into SAP systems owned by clients. In particular,
    this pertains to the Apple on-line store project. Oh,
    PMIX bought Advis last year. PMIX is selling at about
    net cash value of $28 million, has pro-forma revenue
    of around $10mm, and is controlled by a VC with a
    good track record. PMIX pro forma for Advis
    acquisition has about 85 professionals. Head count is 100+
    including others. It seems to me that given what SAPE paid
    for Adjacancy, although PMIX is more back-end
    oriented (isn't this more difficult??), that PMIX would be
    worth $7-$10 per share (which includes the $28 million
    in net cash the company has). Any opinions?

    Yeah, but you probably won't like them.

    About a
    year ago, a headhunter tried to sell me on PMIX (back
    when they were still OneWave (OWAV)). At that time,
    they were a couple of years post-IPO and were burning
    the IPO cash left and right, trying to figure out how
    to make some money. At the time, I thought PMIX was
    a basket case that would take a huge amount of work
    to turn around, and I had no desire to be part of
    that huge amount of work.

    I just took a look at
    PMIX's latest 10K
    (, and they still look like a basket case to me.
    They *still* haven't made any money since they went
    public. For FY1998, they had *negative gross margins*!
    The company notes that "Management can not currently
    anticipate gross profit levels for 1999 as the Company has
    recently modified its business strategy." They spent more
    on *SG&A* than they took in for two years running

    A big part of the SAPE story is their
    execution. They hit their numbers every year, so far without
    exception. SAPE knows what it's doing, and has the history
    to prove it. I would assume that any company SAPE
    buys is going to be focused on execution just as
    closely. As far as I can tell, PMIX isn't focused on

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    • there has been a reversal in cash flows. The
      higher salaries are fine they are reflected in the costs
      but when you look at the cash, the fact that the
      compensation liability went up by 4 million provided a much
      needed cash infusion to show positive operating cash
      flows. I am aware the CF statement is difficult to
      understand many people including many old school accountants
      and many analysts don't.

    • on the significance of the cash flow picture.
      While there is a noticeable drop in operating cash
      flow, the increase in salaries owed does not strike me
      as that unusual, especially considering the two
      acquisitions and Sapient's growth over 98. As for the tax
      payable picture, Sapient got a $4.2M tax benefit as a
      result of the in-process technology, and it's certainly
      not out of line for a company that opened new
      offices. I still say it's the increase in A/R, and the $6M
      increase in deferred income taxes that makes the CF
      picture look worse. I definitely don't see a long-term CF
      trend from 3 yrs of data.

      As far as the
      acquisitions go, Sapient has been doing Internet related work
      for quite a while. It's not a new thing for them, so
      they haven't suddenly become an Internet stock, and
      the two acquisitions only add creative ability to a
      shop that already has great SI/technical architecture
      experience. As one who also knows the systems
      integration/e-business space quite well as you do, I hear very good
      things about Sapient from others. Don't get me wrong,
      they're not without their flaws, and I agree they're not
      a multi-billion dollar company (yet), but they seem
      to execute extremely well and have an impressive
      client roster. But if you're right, and this is all just
      the CFO's handiwork, I'll be the first to eat my hat
      (if I can find one).

    • agree with your own post. the reversal in
      operating cash flows is rather dramatic, a 4 million
      increase in salaries owned to employees is very dramatic
      and takes you from 9 million positive to break even.
      Just wait and see. SAPE bought itself sometime through
      the two web hype acquisitions it made. hedge funds
      that were short were forced to cover as SAPE became an
      internet stock. SAPE is a good company but it is not a
      multibilion dollar company. I don't know ow many shares
      Sussan holds but she sold a few.

    • perhaps that Sapient actually has a growing
      client/project list and is actually doing a lot of work that
      CATP is not? And that maybe you're a bit put off by
      the success they;ve had with their fixed price/fixed
      time model? Or maybe you're just trying to encourage
      others to help out your short position. It seems to me
      that it would be difficult for Sapient to defy gravity
      for three years and not have anyone figure it out.

    • Pancho, I can see the trend, but I don't believe
      it's meaningful. You were very selective in the items
      you chose to highlight. From what I see, the trend in
      cash flow seems to be mostly due to increases in
      Accounts Receivables, which, although not a great
      situation to have (i.e. A/R turns are down), is still
      revenue, no matter what accountant you talk to. Either
      way, I hate to break it you, but all companies
      manipulate earnings in some way or another to manage the
      Street's expectations.

    • Why do you believe that other analysts (Adam
      Harkness, Friedman Billings, BT Alex Brown, Morgan Stanley
      Dean Witter) have upgraded SAPE?

      With Goldman
      Sachs positive outlook (and yes they are a significant
      shareholder & SAPE customer), why do you feel so negative? ,
      "In a research note, Goldman Sachs analyst Greg Gould
      said Sapient should be able to sustain 40 percent to
      45 percent earnings growth over the next four to
      five years. He believes the firm can maintain this as
      it competes in expanding markets, holds a small
      market share (about 1 percent worldwide), and executes
      well on contracts. "

      Could the cash flow issue
      not be tied to Sape's purchases?

    • I am short the stock. Expertise: I am a Professor
      and do consulting/development subcontracting for
      companies similar to SAPE so I know the fix price software
      development business better than most kid analysts in WS. I
      also have an MBA with concentrstions in Finance and
      Accounting. Whatever hair I have left, it is quite gray. I am
      not a kid. I don't care whether people buy sell or
      short this stock. At the end, this puppy will not defy
      gravity. It is a simple as that. You can not hide reality

    • Are you a former employee? Do you work for a
      competitive company? Are you an analyst? Financial Planner?
      Banker? Day Trader? Are you trying to warn us all out

      What is your expertise?

    • to develop a web site must be worth millions of
      dollars. Bet you it does not even get to the million mark!
      Nice to see multibillion dollar company feels the need
      to put out such small events. Sell it to the little

    • Short interest is going up again. Now we all know
      that is bullish!
      Three numbers:
      Shares Short;
      Avg Daily Volume; days to cover
      1 SAPE Sapient
      04/99 1,740,641 283,556 6.14
      1,462,592 198,665 7.36
      02/99 1,527,023 302,984 5.04

      01/99 1,855,929 441,560 4.20
      12/98 2,295,415
      247,338 9.28
      11/98 2,328,183 270,871 8.60

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