The next company in my ongoing series of the top 25 stocks for the NEXT 25 years is Opsware (NASDAQ: OPSW). Opsware is headquartered in Sunnyvale, California and is the leading company in managing the server world. Large organizations deploy what techies aptly call server-farms, which can be as many as 50,000 servers. The function of servers is to quarterback the entire information technology flow of an organization. Servers host all the applications from email service, human resources, financial, internet access, e-commerce functions, security, etc. Servers have been somewhat commoditized over the past 5-10 years, except for the maintenance functions.
Maintenance of servers will often be the highest component of expense of a company's IT budget. Traditionally, servers are updated and maintained by human labor. This requires time and huge expense. For example, a simple update of a security patch may take 2,000-2,500 man-hours to update 2,000 servers. Enter Opsware. Opsware products automate the server maintenance functions thus saving large companies millions of dollars in man-power, plus it expedites the process reducing the time required to update the servers.
Opsware's genesis was the 2000 IPO of LoudCloud, a managed services company founded by 1980's-1990's technology guru Marc Andreessen. The IPO was completed just before the "nuclear winter" hit the technology market and the bubble burst. LoudCloud never really gained its footing as it was swimming upstream from the beginning. LoudCloud sold off its managed services business to EDS Corp. in late 2002, and LoudCloud's management, led by Andreessen retained the valuable software business and renamed the company Opsware. Andreessen saw the future in helping organizations and governments reduce their single biggest IT cost: server maintenance. For those who do not know Marc Andreessen, he was the co-inventor of the internet browser when he was an undergraduate student at the University of Illinois. Marc also co-founded Netscape and went to AOL when AOL bought Netscape. Marc's work at AOL was not rewarding enough as he saw himself as an entrepreneur, so he left AOL in 1998 to found LoudCloud.
One critical factor of any investment decision is to hopefully understand the motivation of the senior management team. This one is easy. Marc Andreessen felt under utilized by AOL and left to recapture his reputation and status as a guru. Money is important to Marc, but it's not the be all, end all. Marc made a fortune selling Netscape to AOL. His drive is to be relevant again.
Opsware's market capitalization is $825 million. Revenues for fiscal year January 31, 2008 should be $143-145 million up from $102 million in fiscal year 2007. Opsware has broken through to profitability and should earn $.15 per share this year. The operating leverage in the financial model is extremely enticing. The early adopters stage for Opsware products is over and now comes the period of mainstream adoption. The purchase price for customers is expensive as the top software product runs about $1,500 per server, per year. Opsware has introduced some mid-level products to ease into departmental sales and has acquired some small private technology companies to go after the networking equipment world. Opsware has a strategic alliance with Cisco Systems ( NASDAQ: CSCO) who re-sells Opsware networking automation products.
Opsware has the chance to be a multi-billion dollar company in the years to come. Server automation is just hitting its stride in IT departments and Opsware is not only the leading company but has a reference list of very happy customers to market from. This company could become the Oracle (NASDAQ: ORCL) of the next two decades in terms of size and market dominance. The current addressable server maintenance market is estimated at $15-16 billion in size and growing.
Marc Andreessen and his team are young and driven to make Opsware extremely relevant in the technology world.
Georges Yared is the CIO of Yared Investment Research where he explores growth stock ideas.
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Reader Comments (Page 1 of 1)
5-16-2007 @ 6:57AM
TK said...
I completely agree with your comments that Opsware has the unique opportunity to be a very large company on the scale of Oracle. I have met the mgmt team, and they are a cohesive force for sure. In fact, many in senior mgmt were at Netscape together, and remained together through Loudcloud, and now, are still together at Opsware. Amazing. They are focused. In any technical bakeoff, their products have no equal, and continue to improve rapidly. I have held the stock for over three years.. Their day in the sun is coming very soon, imho.