DemandTec, Inc.: Cracking the consumer

Secrets of the consumer are coming undone, exposed by DemandTec’s breakthrough marketing software. DemandTec, Inc. (Nasdaq: DMAN) leaves little to the imagination: its suite of scientifically infused software  tells retailers and makers of consumer products how to attract sales, price goods, run promotions, mold and predict demand, and drive profits.

Trading publicly since August but started in 1999, DemandTec has grown into a leader of commerce software, sporting a client list of the biggest retailers: Wal-Mart Stores, Inc. (NYSE: WMT), Safeway Inc. (NYSE: SWY), Target Corporation (NYSE: TGT), Best Buy Co., Inc. (NYSE: BBY) and Office Depot, Inc. (NYSE: ODP), among others. It also markets to consumer products companies, including Campbell Soup Company (NYSE: CPB), Cargill, PhilipMorris and Johnson & Johnson (NYSE: JNJ).

Even DemandTec would find it hard to better shape its own returns since its initial public offering at $11 per share. Its shares have rallied 50% in a little more than two months, closing Friday at $16.59. The high so far is $18.55 on Oct. 10, hit as the company rallied after second-quarter returns released Oct. 4 exceeded analyst expectations. Its market capitalization has grown to more than $420 million.

Revenues in the second quarter of fiscal 2008 ended Aug. 31 rose 40% from the previous year to $14.7 million. Sequential growth was 11% from the first quarter. The company gets its revenues from customer agreements that cover the use of DemandTec’s software and services that go with it. Revenue is recognized over the term of the agreement, which tends to run two to three years. On a non-GAAP basis, the quarterly loss was $0.02 per share, versus a penny gain in the same quarter a year earlier.

DemandTec also pleased investors by projecting revenues for full fiscal 2008 of $60.2 million to $60.7 million—up 40% year-over-year. The San Carlos, Calif.-based company said on its quarterly conference call that earnings for the year would be $0.07 to $0.08; in the third quarter, DemandTec expects to earn $0.03. 

“DemandTec’s consumer demand management solutions are clearly resonating within the retail and consumer goods verticals and we believe that the company is in the early stages of a multi-year growth opportunity,” analyst Jason Maynard at Credit-Suisse wrote in a research note following the conference call. Maynard repeated his “outperform” rating, saying that the company’s second-quarter results reaffirmed a very attractive small-cap growth story.

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