Mercury's Fortunes Are Rising
By Cindy Christ

Investor enthusiasm for Mercury Interactive (MERQ) is near a fever pitch.

Shares in the Sunnyvale, Calif.-based maker of software that monitors network and Web site performance have been on fire lately, shooting from around $21 in April to a 52-week high of $110 in December.

Although Mercury suffered a brief sell-off with the rest of the tech sector in early January, shares rose 8 percent Friday after the company announced a 2-for-1 stock split the night before. After trading as high as $96 intraday, MERQ closed up $7 at $94.63.

The split takes effect Feb. 11th for shareholders of record on Jan. 28th. The company's last stock split was in March 1999, when shares also split 2-for-1.

After the split, the number of Mercury shares outstanding will rise to 78 million from around 39 million.

Last year, Mercury got a boost from being named as one of Merrill Lynch's "Top 10 Technology" focus list stocks. But of late, the primary growth driver supporting the stock's lofty valuation is the e-business marketplace.

In the company's latest quarter ended in September, e-commerce accounted for 55 percent of total sales, up from 15 to 20 percent last year, marking the first time in Mercury's history when the majority of sales didn't come from traditional sources.

In addition, 60 to 70 percent of sales came from new clients. Mercury's current customer roster includes Ameritrade, Apple Computer, Ariba, eToys,Garden.com, Amazon.com, barnesandnoble.com, Charles Schwab, Merrill Lynch, E*Trade and Wingspan.

During its 10-year history, Mercury has evolved from a software testing supplier, helping rid bugs from airline reservations systems, investment bank stock-trading systems, and other multi-site business computer networks, to the leading provider of Web site testing tools.

As the number of online shoppers has begun to take off, e- commerce sites have come to realize that fast Web page download time and reliable content delivery are critical to a dot com's success.

"When an entire business's success is dependent upon a single Web site, maximizing performance and uptime can make the difference between success or failure," said Amnon Landan, Mercury Interactive chairman and CEO, in a statement.

As much as $4.35 billion in e-commerce sales in the U.S. alone can be lost by not meeting the "eight-second" rule for page download speeds, according to a recent study by Zona Research.

Increasingly, e-commerce businesses are warming to Mercury's line of products, including its Astra product suite that can be downloaded easily from its Web site.

Mercury also just launched a new automated tool called Topaz that constantly monitors Web site performance and pages someone when a site failure occurs.

In October, Merrill Lynch, which rates Mercury a short- and long-term "buy," boosted 1999 and 2000 earnings estimates to 84 cents and $1.12 after the company reported another quarter of stellar earnings.

In third quarter 1999, earnings per share were 22 cents, a 50.6 percent increase over the year-ago period. Sales were $47.5 million, up 55.2 percent year over year.

Fortune Magazine recently listed Mercury as number 36 on its list of "America's 100 Fastest-Growing Companies" reporting EPS and revenue growth of 86 and 47 percent.

Mercury gets high marks from other analysts as well, in part because unlike many hot e-commerce start-ups, the company has a consistent earnings history, posting a profit for the past 13 quarters or more.

"Mercury Interactive is our top mid-cap recommendation," said Deutsche Banc Alex. Brown director and senior research analyst James Moore in The Wall Street Transcript's November e- Business Software Report.

"Mercury Interactive's solution can test package applications, legacy applications and, most recently, e-Business applications," said Moore.

Among 13 analysts surveyed by Zacks Investment Research, 10 rate Mercury a "strong buy" and three a "moderate buy."

While Mercury is the leader in Web testing technology, it's not alone in the field, competing with heavyweight Compuware and Rational Software, which offers a broader range of tools.

Other rivals include Segue Software, Radview Software and RSW Software, a unit of Teradyne.

With experts forecasting up to $1.3 trillion in Web-based business over the next five years, competition is bound to heat up. Still, analysts say Mercury's first-mover status puts it several degrees ahead of the crowd.