NIC, Inc. (NASDAQ: EGOV), Obtaining Dedicated, Deep Pocket Customers… Governments
NIC, Inc. (NASDAQ: EGOV), Obtaining Dedicated, Deep Pocket Customers… Governments
The tech sector is by far one of the most elusive, yet lucrative, sectors of all and or emerging growth companies it only gets harder. Not only is there overwhelming competition from aggressive big wigs but profit margins are also strained by high capital expenditures among other bottlenecks.
How do emerging growth companies in this sector secure longevity? While this may seemingly pass by as an uphill task, companies like NIC Inc. (NASDAQ: EGOV) have managed to play the right card in that regard. This internet service provider instead of trying to level the playing ground with larger competitors, it has opted to look for dedicated and deep pocketed customers. Customers that are sure to spend lump sums in a recurrent fashion; like the government.
NIC’s eServices, through its portal and software & Services segments, are particularly tailored to meet the government’s internet needs. Inking contracts with the government translates to a rosy top line, as demonstrated by the 14 percent year-over-year leap in quarterly portal revenues during the third quarter of 2012. In the same breadth, same-state portal revenues also edged up 8 percent during the quarter. From 2007 up until the 2012 3Q earnings release date, the company’s steadily growing bottom line has allowed it to comfortably return more than $133 million to shareholders in form of special cash dividends. This not only shows that NIC has been trending upward, but it also represents the company’s keen interest in creating shareholder value.
2012 fourth quarter earnings are expected to hit the public domain on February 7th. The general outlook is bullish and analysts are inclined to believe that performance will trend upward.
Market tailwinds will fuel company growth
While the government’s candid involvement with NIC is a key factor behind the company’s growth, broader market tailwinds will propel the company through the next decade. As of now, notable breakthroughs are being made with data, particularly so through the roll out of faster and more reliable networks like 4G. In fact, most carriers are currently wedged in an ongoing battle to secure bigger 4G footprints. Just like its bigger competitors, AT&T (NYSE: T) and Verizon (NYSE: VZ), Sprint (NYSE: S) also wants a piece of the action. Its bulging interest to secure the remaining 49 percent stake that it doesn’t already own in Clearwire (NASDAQ: CLWR) is indicative of its desire to expand its spectrum ownership and perhaps filter through the 4G market. Incidentally, DISH Network Corp (NASDAQ: DISH) has also shown interest in buying out the stake in Clearwire.
All these factors, coupled together, signal the market’s gravitation toward better internet. Considering that the government always needs to be a step ahead of the consumer market, it would be accurate to say that NIC’s technology outstrips many of the consumer-oriented companies. In addition, the future promise of work brightens the long-term picture and promises longevity. With growth steadily edging upward, and a 52 week price range of $9.95 -$16.83 (the stock is currently trading close to its high at around $16), it would be accurate to say that NIC has gained tremendous value of the past one year.
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But what if the government suddenly terminates its contract, how much would that impact the company? Concentration risk anyone?
Speaking from experience with government contracts you have a very valid point on termination. Contracts run for a specified number of years and then the contractor must rebid and the competition is usually pretty stiff. Been there, done that. I like the special dividend benefit on this play and this company seems to understand what its client (Govt) needs and successfully delivers.
The company appears to have developed an attractive niche business model. I like that it has lots of cash and no debt. But it has had a strong run over the past 6 months and, at the moment, I think it is overpriced versus comparable companies when looking at consensus 2013 earnings. I might give it another look if it pulled back to ~$15.
I think it is overpriced as well. At $16, it is a high entry point and catalysts look to be a bit uncertain. That said, many securities are at multi-year highs, so its difficult to stay long despite all the positive euphoria.
The company has managed to ink contracts recurrently with the government and I am confident that it will manage to ink more deals in the future.
The stock has had a nice run, earnings growth has been steady. Looks overvalued when looking at book value and cash flow, additionally, how will a decrease in government spending affect EGOV?
Keep in mind that only the federal government has the luxury of deficit spending; states have constitutional requirements to balance their budgets. In the current and foreseeable budget climate, there will be some hard looks at priorities, so keep that in mind when looking at companies like this that rely on government contracts. If you can find one that’s using technology to make government operations less expensive and more efficient, that would be a solid bet.
I agree, that is a big concern considering the government is planning to cut in a lot of places. Good company, but not so attractive of an investment at this level.