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My investing philosophy mostly centers around the Value discipline and GARP- Growth at a Reasonable Price. This blog includes commentary on market conditions as well as fundamental analysis of specific companies. Graduated from Rhodes College with a degree in Business with concentration in Finance & Marketing. Currently working on obtaining the CFA designation. Previously worked in Mortgage Trading for a major bank. Use MS Excel extensively for developing investment models, notably valuation models based on DCF methods.

Wednesday, December 5, 2007

Authentidate (ADAT)- Gaining Traction in Germany

I wrote about Authentidate (nasd:ADAT-$0.92) several weeks ago claiming that it may be an attractive speculative play(article) given its potential upside coupled with a limited downside. My thesis was that ADAT’s new Inscrybe web platform might accelerate adoption of its products, which has immense market potential. I felt that the stock price should find support around current levels due to the cash on the balance sheet and the decrease of selling pressure. I wanted to discuss some recent developments in light of my previous opinion on Authentidate.

Authentidate recently announced a deal with The Bosch Group that comes on the heels of an October 12th announcement of an alliance with Lufthansa Revenue Services.

Authentidate announced November 28th that The Bosch Group domiciled in Germany is employing electronic signatures in its credit memo process with vendors effective immediately. Costly paper processes can be replaced with electronic forms compliant with the law.

Here is a simple overview of the process: Bosch sends out a credit memo to its vendors to purchase materials and then the vendors fill the order and return an invoice for the shipment. Both the credit memo and invoice can be signed electronically and archived with Authentidate’s eBilling Signature Server. Hence, not only will Bosch being using ADAT’s solution, all its suppliers will be as well. Authentidate’s solution satisfies the requirements stipulated by the German VAT Act and EU Invoicing Directive.

This is a significant development for several reasons.

1) Bosch Group is a large company employing 260,000 in 50 countries, and generated sales of 43.7 billion Euros in 2006. At its core, Bosch is a procurement and logistics firm supporting its R&D and manufacturing operations. Thus, Authentidate’s service should be an integral part of Bosch’s IT processes representing the potential for significant revenue.

2) Bosch’s decision to go with Authentidate demonstrates the trust and confidence it has in ADAT’s offering. Ostensibly, a firm such as Bosch, chooses partners carefully and with due diligence.

3) Adoption by a major industry player opens the door for further adoption by its peers and competitors. Bosch’s choice can lead to Authentidate becoming the de facto “industry standard” from achieving legitimacy in the eyes of IT directors industry-wide.

It’s hard to predict the revenue impact from the Bosch agreement, but it suspect it should be significant. If Bosch revenue is approx $65 billion, then 1/100 of 1% is 6.5 million, which may be the high-end with $650k at the low-end of the range. That’s purely a guess, but with the little information to go on, that’s my logic and would expect revenues closer to the low end of the range.

The spill over effects could be significant due to the publicity associated with a company of Bosch’s stature. I expect to see 3 or more new announcements in the next 3 months resulting from the Bosch decision. Granted, these are likely to come from much smaller players, yet I expect momentum to accelerate as ADAT’s solutions achieve critical mass (Bosch & Lufthansa).

Additionally, Authentidate is hosting Signature Day in February, which is a conference that explains and promotes the use of its technology. The Lufthansa and Bosch developments should provide momentum and create interest leading up to the conference. This should attract more participants and ultimately more customers.

As I said in my previous article, the next couple quarters will be a key indication whether ADAT’s offerings are gaining traction. The stock price has stabilized, yet for it to move higher adoption must come to fruition. If that does not occur, ultimately Authentidate will run out of cash in three years.

Disclosure: I am long ADAT


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