NaviSite Drops After Reporting Strong Results
By Cindy Christ

Shares in NaviSite (NAVI) were suffering from a sell on the news mentality after the application hosting provider posted a much smaller-than-expected quarterly loss.

Shares in the Andover, Mass.-based company ran up near $60 ahead of its quarterly release yesterday, but sold off Friday to close down $2.38, or 4.4 percent, at $51.75.

NaviSite went public last October at $14 a share and has since traded as high as $164.94.

Last night, NaviSite reported third quarter revenues of $14.2 million, up 376 percent from a year ago and 55 percent from the previous quarter.

Net loss totaled $16.4 million, or 29 cents a share, 10 cents below analysts estimates from First Call/Thomson Financial.

The company said in a statement that its total customer base increased 44 percent to 283 from 196 in the second quarter. Average annualized revenue per customer jumped sequentially to $201,000 from $187,000.

"This has been another quarter of very strong growth with a record increase in the size of our customer base," said Joel Rosen, NaviSite CEO.

"We continue to grow our customer base including independent software vendors, which we expect will generate increasing revenues for us as the vendors ramp up their own customer bases," he added.

During the quarter, NaviSite received $50 million in cash from the private sale of common stock to CMGI, which is a majority owner. The firm also took in $30 million in cash from a leaseback sale of data center assets.

In addition, NaviSite paved the way to expand internationally by forging strategic alliances with Concert, AT&T's and British Telecom's joint venture, and with Level 3 Communications.

The company also completed a 2-for-1 stock split in early April, which increased its outstanding shares to 56.2 million.

Citing strong results, on Friday Robertson Stephens eCommerce Services Analyst Richard Juarez raised his estimates for NaviSite for fiscal 2000 to a loss of $1.37 per share from $1.53 and for 2001 to a loss of $0.93 from $0.98.

Earlier in the week, Jaurez released a research report naming NaviSite among four application service providers whose share price may be on the upswing.

"ASPs represent the convergence of access, hosting, and hosted applications, a sector we believe will experience rapid growth over the next 12 months," Jaurez wrote in the report.

"We predict there will be more than 5,000 ASPs of various flavors by the end of 2001, and that the market for ASP services will grow to over $23 billion by 2003," he added.

Juarez, who rates NaviStar a "buy," has a $110 price target on the company's shares.

Other ASPs Juarez thinks investors should take a look at are Critical Path (CPTH), eGain Communications (EGAN) and USInternetworking (USIX).