E-Finance: It's time to put up or shut up - Statistical Data Included

After attending a recent industry trade show, we came away with several observations, which, I believe, are truly relevant to the investment merits of this industry. Below, we summarize:

Modularization is in vogue. It's becoming apparent that an LMS isn't the only point of entry for an e-learning initiative. By breaking products into modules, providers can sell to a customer's pain point, which can be addressed through collaboration technology or learning content management. That also should provide future up-sell opportunities for providers that offer a number of different modules.

Collaboration is the next target. Last March, we highlighted the LCMS sectot as an upcoming area of consolidation, which has, in fact, occurred. We believe that the acquisition spotlight will now expand to include collaboration or virtual classroom solutions. We think the fear of Microsoft's next move with NetMeeting and valuations are the reasons the dam hasn't broken sooner.

Performance management is the module of the future. We believe that with the LMS, authoring, collaboration, and now knowledge management (LCMS) offerings established in the marketplace, performance management will be the module. We think integration, strategic planning, and benchmarking data will lead to strong demand for that product from the Fortune 2000.

Wireless distribution should be marketed 12 months from now. Due to the economic environment, many companies have toned down their e-learning wish lists, which included expensive initiatives such as wireless delivery. Current products are able to deliver limited content with little or no interaction, which doesn't create a compelling learning option, in our opinion. Once bandwidth and usability issues are resolved, however, we believe wireless distribution will garner traction due to the appeal of learning anytime, anywhere--as well as the productivity enhancements.

English as a second language is beginning to percolate. We believe the ESL online market will begin heating up in the next 12 to 24 months. In our opinion, ESL products are viable due to the global nature of business and will eventually gain traction with corporations and individual buyers.

What continues to catch our eye is the spin as opposed to the substance of solutions that vendors continue to push on potential customers. We believe that most suppliers are going to continue to have real trouble generating sales in a declining economy because of their inability to succinctly and specifically differentiate their technological advantage, which is what clearly and quickly translates to saving money and increasing competitive advantage.

We understand that the economy is slow, but we think companies are using that as a crutch. Companies that can communicate a solution that a customer can use and really needs today have been successful. Too many business are selling "me too" technology within a product line that's too thin due to capital constraints or plain lack of vision.

This month, we unveil a new performance table to help differentiate our chosen corporate sector by niche. This should help readers better understand the movements in the group. October performance went as expected except for the out-performance in the content management segment due to short covering (investors buying back stock after selling it hoping the stock would fall) following earnings reports. The collaboration sector rose 32 percent on the potential strong demand for its services.

Centra being down 41 percent after a poor earnings report for 3Q01 mitigated the group's strong performance. Overall, the industry rose 15 percent in October, which was in line with the NASDAQ. Further insight into this month's performance shows that the strength of the collaboration segment and short covering were easily able to offset the minimal pressure from tax-loss selling by the institutions. Tax-loss selling is when institutions purge poor-performing stocks to offset any gains they've had during the year--to prevent taxable events for their shareholders.

Peter L. Martin, CFA, is a senior vice president with Jefferies & Co., San Francisco. He follows various segments within the knowledge services industry, which are broadly categorized under e-learning and traditional education and training.

[Graph omitted]

                                              Price   52 Week
Company                              Ticker     10/31       High
eLearning

Infrastructure Software and Service

Click2learn.com                       CLKS      $3.48     $18.25
Docent                                DCNT      $1.75     $27.13
RWD Technologies                      RWDT      $2.20      $7.47
Saba Software Systems                 SABA      $2.81     $25.88
Vcampus Corp.                         VCMP      $0.43      $2.75

Average

Content Providers

DigitalThink                          DTHK      $8.28     $36.38
Dow Jones & Company                    DJ      $45.00     $64.30
FactSet Research Systems              FDS      $24.75     $47.49
John Wiley & Sons                     JWa      $20.20     $23.89
ProsoftTraining.com                   POSO      $0.44     $15.00
Skilisoft Corp.                       SKIL     $22.95     $38.94
SmartForce Public Ltd. Co.            SMTF     $16.46     $53.13

Average

Collaboration and Communication

Act Teleconferencing                  ACTT      $9.57     $11.35
Centra Software                       CTRA      $5.27     $17.14
Eloquent                              FLOQ      $0.60      $3.38
Genesys                               GNSY      $7.17     $15.29
Mentergy                              MNTE      $0.64      $5.50
Nuance Communications                 NUAN      $8.07    $120.00
Polycom                               PLCM     $29.98     $67.75
Raindance Communications              RNDC      $5.35      $5.03
Speechworks International             SPWX      $7.50     $99.50
WebEx                                 WEBX     $30.80     $50.75
Wire One Technologie                  WONE      $9.35     $10.31

Average

Content Management

Actuate Corp.                         ACTU      $4.15     $36.31
Adobe Systems                         ADBE     $26.40     $87.31
Broadvision                           BVSN      $2.04     $37.13
Documentum                            DCTM     $14.77     $63.88
Imanage                               IMAN      $4.37      $8.50
Innodata                              INOD      $3.45      $9.25
Insightful Corporation                IFUL      $2.73      $4.44
Interwoven                            IWOV      $7.31     $59.31
Macromedia                            MACR     $14.96     $84.63
Stellent                              STEL     $20.50     $64.00
Vignette Corp.                        VIGN      $4.68     $34.19

Average

Instructor Led Training

Corporate Executive Board             EXBD     $30.57     $46.75
Learning Tree International           LTRE     $21.04     $59.75
New Horizons Worldwide                NEWH     $10.50     $18.70
Provant                               POVT      $0.61      $7.94

Average

Average Corporate
Education Companies

                                      52 Week          Mkt  3-Mon Avg
Company                                  Low    Cap (mm)   Trdg Vol
eLearning

Infrastructure Software and Service

Click2learn.com                        $1.00      $69.18     67,018
Docent                                 $1.48      $68.09    184,855
RWD Technologies                       $1.70      $37.76     12,019
Saba Software Systems                  $1.52      $95.29    714,381
Vcampus Corp.                          $0.36       $6.39     15,905

Average                                           $55.34    198,835

Content Providers

DigitalThink                           $5.34     $260.35    322,479
Dow Jones & Company                   $43.05   $2,891.86    325,744
FactSet Research Systems              $17.80     $823.45    195,745
John Wiley & Sons                     $17.90   $1,003.06     47,071
ProsoftTraining.com                    $0.29       $9.71    157,890
Skilisoft Corp.                       $11.75     $343.92    214,450
SmartForce Public Ltd. Co.            $13.40     $897.96  1,745,077

Average                                          $890.05    429,779

Collaboration and Communication

Act Teleconferencing                   $3.89      $62.18     90,781
Centra Software                        $2.75     $127.18    569,766
Eloquent                               $0.45      $10.19     36,158
Genesys                                $4.55     $195.91     24,645
Mentergy                               $0.23       $9.47     45,040
Nuance Communications                  $5.65     $264.97    669,055
Polycom                               $10.75   $2,369.83  2,546,073
Raindance Communications               $0.74     $211.03    712,966
Speechworks International              $4.10     $216.68    371,790
WebEx                                  $5.06   $1,240.97  1,357,776
Wire One Technologie                   $1.44     $182.27    233,127

Average                                          $444.61    605,198

Content Management

Actuate Corp.                          $2.80     $246.47    625,327
Adobe Systems                         $22.20   $6,819.27  4,336,624
Broadvision                            $0.68     $526.51  5,258,218
Documentum                             $5.88     $551.07    542,594
Imanage                                $1.50     $104.62     67,231
Innodata                               $1.26      $67.42     70,894
Insightful Corporation                 $1.25      $28.90     36,829
Interwoven                             $3.11     $729.09  3,171,864
Macromedia                            $11.30     $888.04    651,571
Stellent                              $13.24     $448.33    436,744
Vignette Corp.                         $3.08   $1,168.41  4,581,918

Average                                        $1,052.56  1,798,165

Instructor Led Training

Corporate Executive Board             $22.85   $1,074.09    485,945
Learning Tree International           $14.50     $408.68    159,210
New Horizons Worldwide                 $8.30     $101.82     20,371
Provant                                $0.32      $12.43    119,690

Average                                          $399.26    196,304

Average Corporate
Education Companies                              $646.65    821,706

                                               Return (%)
Company                              1-Mon     3-Mon     6-Mon
eLearning

Infrastructure Software and Service

Click2learn.com                       33.5       6.8      74.4
Docent                               -22.2     -73.8     -68.7
RWD Technologies                      29.3     -27.4     -29.6
Saba Software Systems                  1.0     -84.2     -75.0
Vcampus Corp.                        -19.6     -71.2     -77.4

Average                                4.4     -50.0     -35.3

Content Providers

DigitalThink                          -4.7     -49.9     -14.0
Dow Jones & Company                   -1.6     -21.2     -17.6
FactSet Research Systems               2.2     -24.7     -30.2
John Wiley & Sons                     -2.8      -0.2       8.8
ProsoftTraining.com                  -35.9     -66.9     -86.6
Skilisoft Corp.                       32.2     -37.0     -23.1
SmartForce Public Ltd. Co.            -1.5     -53.6     -55.2

Average                               -1.7     -36.2     -31.1

Collaboration and Communication

Act Teleconferencing                  20.5     141.0      65.0
Centra Software                      -40.9     -68.8     -44.9
Eloquent                             -37.5     -43.3     -38.9
Genesys                                4.4       3.7     -36.4
Mentergy                             136.4      36.8     -48.7
Nuance Communications                 24.2     -40.2     -37.0
Polycom                               16.4      11.0      22.1
Raindance Communications             107.4     261.3     168.3
Speechworks International             36.9     -39.5     -47.7
WebEx                                 48.5      28.8     163.7
Wire One Technologie                  39.1      49.1     192.1

Average                               32.3      30.9      32.5

Content Management

Actuate Corp.                         -1.9     -60.1     -67.1
Adobe Systems                         19.9     -29.1     -36.0
Broadvision                          107.7     -41.7     -70.4
Documentum                            78.0      -5.3      -2.6
Imanage                               11.5       2.5      58.7
Innodata                              57.5     -13.0     -62.3
Insightful Corporation                12.6      -2.9      21.8
Interwoven                            82.4     -31.2     -51.9
Macromedia                            26.8      -9.9     -32.3
Stellent                              39.1     -19.0     -39.4
Vignette Corp.                        33.6     -40.3     -29.4


Average                               42.5     -22.7     -28.3

Instructor Led Training

Corporate Executive Board             18.5     -26.3      -7.0
Learning Tree International            4.6      -6.8       0.6
New Horizons Worldwide               -13.2     -28.6     -31.7
Provant                               50.0     -67.4     -81.5

Average                               15.0     -32.3     -29.9

Average Corporate
Education Companies                   23.5     -14.3     -12.3

                                          Return (%)
Company                              12-Mon      YTD
eLearning

Infrastructure Software and Service

Click2learn.com                       -76.9    -64.4
Docent                                   NA    -81.6
RWD Technologies                      -64.7    -19.3
Saba Software Systems                 -90.9    -87.3
Vcampus Corp.                         -78.2    -46.7

Average                               -77.7    -59.9

Content Providers

DigitalThink                          -78.3    -56.8
Dow Jones & Company                   -24.0    -21.0
FactSet Research Systems              -31.1    -33.1
John Wiley & Sons                       0.2     -5.6
ProsoftTraining.com                   -94.2    -96.6
Skilisoft Corp.                        20.3     12.6
SmartForce Public Ltd. Co.            -66.2    -57.1

Average                               -39.0    -36.8

Collaboration and Communication

Act Teleconferencing                   31.1     40.4
Centra Software                        -2.5     30.6
Eloquent                              -78.0    -69.7
Genesys                                  NA       NA
Mentergy                              -83.6    -61.0
Nuance Communications                 -90.1    -81.3
Polycom                               -53.7    -11.9
Raindance Communications               -0.4    156.0
Speechworks International             -91.2    -86.2
WebEx                                 -29.3     51.1
Wire One Technologie                  -15.5     86.3

Average                               -41.3      5.4

Content Management

Actuate Corp.                         -83.4    -78.5
Adobe Systems                         -58.7    -50.6
Broadvision                           -93.1    -84.0
Documentum                            -65.8    -70.7
Imanage                                15.1     -2.2
Innodata                               20.7    -42.7
Insightful Corporation                 17.5     68.2
Interwoven                            -84.9    -78.6
Macromedia                            -79.7    -74.7
Stellent                              -51.1    -60.7
Vignette Corp.                        -82.4    -73.7

Average                               -49.6    -49.9

Instructor Led Training

Corporate Executive Board             -32.8    -22.3
Learning Tree International           -49.4    -57.1
New Horizons Worldwide                -27.8    -27.9
Provant                               -91.3    -86.7

Average                               -50.3    -48.5

Average Corporate
Education Companies                   -48.5    -33.6

COPYRIGHT 2001 American Society for Training & Development, Inc.
COPYRIGHT 2002 Gale Group