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February 13, 2013 at 06:31 AM EST
A Tale of an Undervalued Tech Gem

Keynote Systems (NASDAQ:KEYN) is one company investors should not underestimate especially among Yahoo! Inc. (NASDAQ:YHOO) and SINA (NASDAQ:SINA) who are trading at relatively low valuations.

It seems that experts are always focused on the decline of the Internet software and services line. Companies manufacturing smartphones and tablets are now touted as growth prospects. It's no wonder shares of Internet software and services giants such as Yahoo! Inc. (NASDAQ:YHOO), AOL, and SINA Corporation (NASDAQ:SINA) are trading at relatively low multi-year valuations. While the growth of companies in this line may be lower, hope exists that they will grow in this constantly changing global business environment.

For some time, investors have been ignoring these companies but savvy investors are not fooled. Keynote Systems (NASDAQ:KEYN) is one company investors should not underestimate. This $286 million company is the global leader in Internet and mobile cloud testing and monitoring. Through it, companies know how their sites, content, and applications work on real browsers, networks, and mobile devices. Its platforms are used by B2B sites, online portals, e-commerce sites, mobile providers and mobile operators.

KEYN recently reported its first fiscal quarter of 2013. Revenue for the quarter reached $33.9 million, compared to $33.1 million in the first fiscal quarter of 2012. Total Internet revenue was $16.4 million, up from $15.5 million a year ago. On December 31, 2012, Keynote had $51.2 million in cash, short-term investments and cash equivalents, compared to $49.9 million on September 30, 2012. Non-GAAP net income for the first fiscal quarter of 2013 was $6.0 million, compared to $6.0 million for the same period last fiscal year. The management expects total revenue of between $30.0 million and $32.0 million for the second quarter of 2013. It projects net income to be between $0.02 and $0.10 per share. Non-GAAP net income per diluted share is expected to be between $0.15 and $0.23. Guidance is based on expected seasonal decrease in sequential revenue.

Umang Gupta, Chairman and CEO of Keynote, said: "Our first fiscal quarter of 2013 results were better than expected. Our Internet subscriptions revenue continued on its upward trajectory and our mobile telecom business delivered record revenue. Additionally, we continued to make progress with our mobile enterprise business. Today, we have the strongest product offering in our growing market segments and solid go-to-market strategies. We are optimistic about our future prospects."

Presently the stock is trading at $15.64 per share and KEYN has a market cap of $284 million. For the past year, the stock has traded between $12.46 and $20.51. Recently, Keynote was ranked by Forbes as one of the best small-cap companies in 2012. Moving forward, management sees great opportunity for growth and good return for investors. The company will hold its 2013 annual meeting in San Mateo on Friday, March 15, 2013.


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