Re-invest Your Tax Refund

As reported in previous ISP-Planet articles, Inktomi is not just a search engine. The company is a major competitor in the Content Delivery Network (CDN) arena. It's an engineering company that owns valuable technology—and faces powerful competition.

To see the calculations on which this report was based, go to this Excel spreadsheet or this HTML page.

by Manish Aurora of www.rationalinvesting.com [January 19, 2001]

Inktomi (INKT) develops software to enhance the performance and intelligence of large-scale networks. Inktomi's target companies are very large enterprises, media companies and service providers in the Internet access, backbone, hosting and content markets.

The company's customer and partner base includes America Online, British Telecommunications, Intel, Merrill Lynch, Microsoft, RealNetworks, Sun Microsystems, and Yahoo!

It directly competes against Akamai, CacheFlow, Cisco Systems, Microsoft, Network Appliance, Novell, and Spyglass.

The applications
Its applications fall into two broad categories, network products and portal services. Network products applications consist of the Traffic Server network cache platform, the Content Delivery Suite, and associated Traffic Server extensions.

• Inktomi's Traffic Server is a commercial network cache designed to reduce congestion over the Internet and increase efficiency in moving data to its destination.
• The Content Delivery Suite replicates, and synchronizes the delivery of, content on servers and caches, combining redundancy and fault tolerance with Traffic Server mirroring for service providers and enterprises.
• Inktomi's Media Distribution Network (MDN) is dedicated to streaming media that resides on top of an existing IP network. MDN software is designed to distribute high-quality broadcast streams to the edge of the network, where edge servers deliver the audio and video directly to the audience. It helps content producers and service providers in reaching and monitoring targeted audiences.

The Company's current portal service applications include search, shopping, and directory services, and are offered to Internet portal and Website customers. Inktomi's search technology includes regional or global Internet searching, retrieval systems for large text archives and online search support for publisher archives. Inktomi's Commerce Engine software enables users to compare merchandise. The Shopping Engine gives users access to information, including reviews from Consumers Digest and user commentary from Deja News and Delphi.

The numbers
Inktomi's revenues for the September 2000 quarter totaled $78.6 million, a 190 percent gain over the comparable quarter in 1999. For the fiscal year also ended September 30, Inktomi had revenues of $223.5 million, vs. $73.5 million for the 1999 fiscal year. Its annual pro forma net was $13.0 million compared with a prior year loss of $29.2 million.

Inktomi's stock has suffered like any other firm's. Chances are, revenue growth will remain soft through the first half of the year, and they will cut prices modestly to stay competitive. This is a very strong engineering firm that unfortunately was over-hyped.

Our Discounted Cash Flow model says that INKT is worth $45. It is currently trading at $14. Our model assumes a terminal growth rate of 3.4% and a Beta of 1.5. It might be a good stock to look at—after your tax refund.

Important notes
The methods on which this report is based are described in "Pricing A Stock."

Please also read the disclaimer.

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