IncrediMail to forge ahead on new products

CEO Ofer Adler: We have many ideas for new developments.

When we interviewed IncrediMail CEO Ofer Adler ten weeks ago, he had no fear in saying that we will be more and more like Google and Yahoo!. A whole quarter has passed since that interview, IncrediMail is still light years away from being like the two US giants, but its collaboration with Google continues to keep it on the right path, as witness the second quarter results and its soaring share price.

IncrediMail, which develops free software for e-mail users, joined search giant Gogles AdSense contextual advertising program, and its revenue started to climb, as search-based advertising became the main contributor to its top line.

IncrediMail has revenue of $6.7 million in the second quarter, 29% more than in the corresponding quarter of 008. It made a net profit of $2.4 million, or $0.26 per share, compared with $0.07 per share in the corresponding quarter, a result affected by the fact that search-based advertising revenue is more profitable than revenue from selling software of premium services.

IncrediMails share price has risen 293% since the beginning of the year, and it rose 28% last week to a year-to-date peak of $8.58 on Friday, a price only 9% below the all time high it reached two years ago. The company has a market cap of $79 million, and $29.8 million cash. The company was floated at a share price of $7.5.

Asked in the conference call on the new generation of the companys products, and whether their development would have a substantial impact on R&D spending, Adler responded, No, were happy with the current level and with our existing development capability. He was also asked whether IncrediMail would not abandon development and focus purely on search-based advertising and on upgrading existing products, and responded that the company was combining the two approaches. We believe theres plenty of room for growth in IncrediMails products and the HiYo solution, but we have many ideas for new developments, he said.

However, Adler admitted that the company needed to improve in the area of customer retention. Only 18-20% of IncrediMail users remain users after a year. People tend to try programs and give them up after a day or two, and thats typical of most of the companies that give away software free. In general terms, our software does configuration of the electronic mailbox, and people dont always get used to that. We are therefore striving to make adaptation easier.

Three weeks ago, IncrediMail raised its annual guidance, saying that revenue this year would be at least $26 million and operating profit at least $9 million, giving a profit margin of 35%

As for the third quarter, Adler said in the companys press release, Although the third quarter is expected to be affected by seasonality, we expect this to be more than offset in the fourth quarter. We believe that the introduction of IncrediMail 2 during the third quarter of 2009, together with other initiatives we have taken, should provide us with the momentum to attain record results again in the fourth quarter.

Published by Globes [online], Israel business news - - on August 10, 2009

Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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