3 Computer Services Firms that Stand Out
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The computer services field is typically loaded with a tremendous amount of competition. However, there are several companies that have either managed to find a niche, or dominate in a sub-sector that is riddled with competition.
Sohu.com could be the Chinese version of Google and Facebook combined
Sohu.com (NASDAQ: SOHU) is an interesting play that relies heavily on the viability of China's internet industry. It operates the popular internet portal Sohu.com, and various games, social networking sites and property information. The company has undertaken aggressive growth strategies that could either increase the firm's revenue, or turn users off. One such strategy includes paid online videos and paid search.
The firm has momentum in generating revenue. Over the last four years, Sohu has more than doubled its revenue, which was over $1 billion last year. The company will likely continue to grow revenue through diversification, and the popularity of its services are a testament that the company is able to make the most out of each revenue stream it chooses. This firm is not only a strong way to invest in the computer services market, but also in the Chinese economy.
BMC knows how to keep clients coming back
BMC Software (NASDAQ: BMC) specializes in helping clients manage complicated IT systems. The firm has been focusing its products on the business service management side, and this allows it to offer the type of services that can build a broad clientele. That customer base looks positioned to keep profits flowing into the company long into the future, and that means stability for shareholders.
The company's integration of the customer's specific requirements with the IT management tools have generated clients that continually come back for more business. Furthermore, the mainframe business has continually shown that it can perform well and provides a solid backbone for the company. This foundation allows BMC to have a steady revenue stream as it works through other complications.
However, BMC has struggled to seamlessly integrate acquisitions. In fact, according to Morningstar, miscalculations and missteps have caused the company to be distracted and suffer from execution issues. That poor integration of acquisitions resulted in sales force attrition rates around 40%. In the very competitive computer services industry, it is important that firms are able to grow with little resistance. I'd keep my eye on this company, but it will need to improve its ability to integrate with acquisitions before I make a purchase.
Athenahealth is working a niche
Athenahealth (NASDAQ: ATHN) is an internet-based health practice management application. The service is provided through athenaNet and facilitates billing, clinical services and other similar services. The services are very rare, and that contributes to the firm's 97% retention rate, and the vast majority of customers report a positive experience with the company. That client retention will help the firm keep its competitive position in this sub-sector.
This company's health will last for at least several years, as its services are needed in a climate that is full of health-care reforms, aging software and complex insurance processing requirements. Furthermore, health care IT integration is becoming a common practice. Despite a disappointing second quarter, I am a long-term bull on this company.
Keeping an eye on progress
I usually check the health of my stocks every day, and read nearly all news reports about each. That becomes particularly important in the computer services industry, as there is a slew of mergers and acquisitions to look out for. While it is difficult to know the precise effect one of these deals could have on a company, you want to purchase a stock that is at least actively pursuing growth. All three of these firms meet that bill, but you also need to keep a close eye on how well they are integrating.
What macro trend was Warren Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: "What's Really Eating at America's Competitiveness." You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Athenahealth and Sohu.com. The Motley Fool owns shares of BMC Software. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!