Keynote Systems, Inc. (KEYN): Should You Follow the Big Money Into the Web Analytics Biz?

Fighting Big Blue

Of course, all competitors in the web analytics segment have an uphill battle against technology giant International Business Machines Corp. (NYSE:IBM), which competes in the business through its Tivoli unit. The company continues to transform itself into a software-focused enterprise, with software accounting for roughly 45% of operating profit in 2012 versus 27% in 2000. IBM also has an enormous cost advantage over its smaller competitors due to its unparalleled efficiency and balance sheet strength.

In its latest fiscal year, International Business Machines Corp. (NYSE:IBM)’s overall sales declined due to weak economic growth in developed countries, but it achieved sales gains in emerging markets and in selected focus areas. The software segment, including web and business analytics, is one of the company’s chief growth drivers and enjoyed sales growth during the period, with its Tivoli unit enjoying a 4% sales gain. More importantly, IBM continues to generate massive operating cash flow, approximately $19.5 billion for the year, which allows it to invest heavily in its core competencies, while returning excess cash to shareholders.

The bottom line

The web analytics business should generate continued future growth, as companies require testing and assurance services for their growing online operations. However, the lion’s share of the segment’s revenues will go to the global operators capable of delivering service at the lowest unit price. While Compuware Corporation (NASDAQ:CPWR) should be a solid competitor, once it figures out its corporate strategy, International Business Machines Corp. (NYSE:IBM) will be hard to beat with its global operating footprint and financing power. It should be a core holding for investors.

The article Should You Follow the Big Money Into the Web Analytics Biz? originally appeared on Fool.com and is written by Robert Hanley.

Robert Hanley has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines (NYSE:IBM). Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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