There is no better example of what radical valuations exist in different localization stocks than comparing Berlitz (BTZ) and SDL International (SDL). Founded in the late 1800s, Berlitz is the best-known name in the language industry, and was the 1999 sales leader for localization firms. In late December 1999, Berlitz’s market capitalization was US$ 165.6 million. SDL International, which launched an IPO on December 8, had a market capitalization of US$ 220 million on its initial day. Even so, the company as a whole is losing money.

The Internet continued to dominate everyone’s perception of the securities markets and their future. One noted analyst stated that: “These stocks have become like major land masses… there’s nothing to compare them anymore. It’s price to fantasy.”

But if you think current valuations overestimate the value of new localization firms relative to the established, this is nothing when you look at how current securities valuations rate high-tech companies compared to the gross domestic product (GDP) of given countries (see Figure 1). 1999 was certainly an unusual year!

The massive amount of public relations and advertising money spent by the “dot com” companies is helping the entire localization industry. Because localization is still a relatively new industry, the money is spent more on promoting the value of globalization than it is on brand recognition. Thus when Bowne announced in a December 16 press release that: “worldwide e-commerce revenues are expected to surpass US $1.4 trillion in just a few years,” everyone involved in Web site globalization benefited.

Performance of Listed Companies

Berlitz’s stock is off considerably from the start of 1999 when it was trading near US$ 30 a share; it has since fallen to US$ 17. In early December Berlitz GlobalNET announced a new program, “Berlitz it”, a desktop solution that offers direct access to Berlitz’s translation services via the Internet.

Perhaps the most written about company in the last three months has been Lernout & Hauspie (LHSP). In November, The Wall Street Journal noted in a major article that L&H wants to make itself “better understood” by US investors. Lernout & Hauspie’s stock has been in the doldrums. The Wall Street Journal noted that low stock prices were due to promises that the management made but did not keep, stock buy-back, and finally an SEC profile that forced Lernout & Hauspie to restate its earnings. One short seller of Lernout & Hauspie stock noted that: “this is a company in an exciting market that is over-hyped and underdeveloped.”

Nevertheless, a lot of companies believe in Lernout & Hauspie’s basic technologies: Realspeak, software that enables computers to read text with a human voice, and iTranslate, an Internet service that translate documents on demand in 36 languages. The market seems to be listening, too, as the stock has almost doubled in price (April – December). Spurring the rise was the announcement that L&H will make translation services available on Microsoft’s MS Office upgrade Web site.

Under the Microsoft deal, Web surfers will be able to submit documents to Lernout & Hauspie. In return for the exposure on its site, Microsoft will receive a commission from Lernout & Hauspie on each order placed through the site. It will be interesting to watch L&H stock at the end of January 2000 when the iTranslate service is up and running. The Wall Street Journal Europe concluded in a December analysis that: “some analysts believe L&H’s stock could explode in coming months as US investors become more familiar with what the company does and as short-sellers are gradually compelled to cover their positions.” It is also worth mentioning that Lernout & Hauspie has hired Roel Pieper, a well-respected hi-tech executive, as its executive vice chairman to further uplift its image. A Lehman Brother’s analyst noted that: “Like Intel and Microsoft, he is an established name that will give them more credibility with the investment community.”

While localization remains a small part of Bowne’s (BNE) business, its Web site is full of the latest activities of its localization business unit, Bowne Global Solutions. This group had record revenues in its last quarter of US$ 16.1 million, but is still listed as losing money for Bowne as it continues to write off acquisition costs. Bowne introduced yet another brand name into the market in announcing Octopus, “a robot global content management system.” But has any of this Internet talk helped Bowne’s stock? Not really: it traded at a high of US$ 19.50 in May and in December finds itself at US$ 12, up from a 52-week low of US$ 10.37.

Lionbridge Technologies’ (LIOX) stock has held steady at around US$ 20 per share. There continues to be a lot of trading in this stock, as witnessed by the type of mentality and jargon Lionbridge faced from the day chat room on its stock on December 19:

“LIOX posters, sorry I have been out of pocket, but Friday was crazy. Something smells on this deal, and while I am a little long at this time (I was in and out three times Friday), the more I looked at Thursday’s activity, and the suspicions I formed who was selling, the more it seemed the fox was in the hen house?

This had to work put a sell order for the remainder of my day trading LIOX for 24 but it did not get still feel fine holding over the weekend!! (sic) May even get a chance to get my 200 I sold for 21 Monday but do not like to put buy orders away at work!!! Go LIOX.”

Contrasting the volatility of the day traders’ mentality, Lionbridge announced a major sale on December 15—the signing of an agreement to provide Nortel Networks with US$ 30 million of services. According to Lionbridge, the agreement “is the largest internal localization and translation service agreement in the industry.” This went largely unnoticed by the market.

Another notable development for Lionbridge was the release of a Prudential Securities Research Report in mid-October placing Lionbridge in the “Strong Buy” category. The report noted, “Our 12 month price target for LIOX is US$ 32, representing a seven time multiple of estimated 2000 revenues.”

Source: NY Times

Company	Market Capitalization (US$ billion)	Country with GDP of Equal Size
Juniper Networks	16	Cuba
Phone.com	8	Jamaica
Lucent Technologies	227	South Africa
America Online	194	Philippines
Cisco	344	Iran
VA Linux	9	Latvia

Figure 1

Lionbridge continues to challenge the conventional wisdom in the localization industry by acquiring Intl. com. The combined companies can now claim to be the largest localization company in the world. Unlike most acquisitions, initial word of the purchase drove Lionbridge’s stock up but it has “settled”, if that is the proper word, in its trading range of the past several months.

Alpnet (AILP) is a far more researched stock than it used to be. In fact, their stock more than doubled in value during 1999 (US$ 1.30 to US$ 4.50). Alpnet made the most of China’s entry into the WTO by announcing that: “Alpnet is poised with market leadership with China’s WTO membership.”

SDL successfully launched its IPO on December 8, closing at nearly three times its offer price. After peaking at 396 1/2 pence, the shares fell back slightly to close at 387 1/2 pence—substantially up from the offer price of 134 pence and giving a market capitalization of about £130 million. The offer was oversubscribed more than five times and raised £7 million after expenses, which will be used to market WebFlow, “a translation product that helps companies update multilingual Internet Web sites more quickly.”

Mark Lancaster stated he was “pleasantly surprised” by the performance of the shares. “We’d got to a point in our evolution where we needed investment to market WebFlow, and we could have done that through venture capital or by flotation.” SDL reported profits of £177,000 on sales of £10 million in 1998. Analysts said SDL’s strong debut indicated the premium attached to the WebFlow product could account for a third of turnover within two years. For all of 1999, only four percent of turnover was expected to come from Internet services.

Venture Capital

ETranslate launched eTranslateNet, an information service, to translators. Etranslate also began an extensive advertising campaign to match the one Bowne Global Systems undertook, which we mentioned in our last issue. In true California style one of the ads reads: “If English and HTML are your only languages, you’re in deep geservshlitz.”

According to Business Marketing, “Geservshlitz, alas, has no meaning.” The ad clarifies further, “If your Web site works in English, don’t presume that it will communicate globally.” The ad specifies further, promoting eTranslate’s network of 12,000 translators in more than 100 countries. A silver tagline, beneath the People’s Republic of China-like gold and red that dominate most of the ad, completes eTranslate’s message: “The global promise of the Net. Kept.” The campaign, which began early last month, consists of print and Web banner ads and runs on pages and Web sites of magazines including The Economist and The Industry Standard. Next year it will extend to outdoor billboards in cities such as New York and San Francisco. In my recollection this will be the first billboard advertising ever for the language and localization industries.

Laurie Coots, chief marketing officer of TBWA/Chiat Day North America, notes, “just one in ten new dot com campaigns will succeed in connecting with consumers, due in part to the fact that many are niche companies that lack a sustainable offering.” However, a lot of the new advertising’s purpose can be summed up by the VP of Marketing at Web Ex, a new e-commerce company: “our company is completely leveraged towards an IPO and raising awareness in the investment community as well as with consumers.”

The US IPO market was red hot in 1999, with US$ 69.2 billion being raised, or 20 percent of the total raised since 1988. The new venture capital localization firms will probably take advantage of the market as soon as possible. This will not only happen due to the reception Internet-related offerings have gotten, but also because of the “exit strategy” covenant in most venture capital financing. Venture capital companies are not in the installment loan business but want to recoup their “investment plus change” as soon as possible.

A lot of the venture capital money has been going on public relations and advertising. An analysis of the press generated by four of the latest venture capital localization firms reveals that they have placed quite a number of articles and mentions in the trade press the last three months. Idiom in particular has added any news story having to do with international e-commerce to their Web site. We can only assume that all this venture capital press will create even a more expansive audience for the entire localization industry.

Logos is also financed by venture capital, but its European investors have a longer term view and have radically cut back its marketing and public relations efforts of a couple of years ago, when it still had the intention of going public. Obviously, to European financers the “exit strategy” has a different time perspective than to those in Silicon Valley.

Global Sight announced in mid-December that it had closed a second round of funding totaling US $12.9 million. J.H. Whitney of Stanford Connecticut, Hikari Tsushin of Tokyo and Draper Fisher Jurveston of Redwood City participated in this round. Venture capitalists didn’t have to worry too much about “forward looking statements” of public companies. One of Global Sight’s venture capitalists, Draper Fisher Jurvetson, declared in a November 1999 Business Week profile that “Global Sight could reach a US $1 billion market value in five years.” This firm has gained a lot of credibility in creating a venture capital fund for well-financed investors to invest in dot coms. Draper had also invested in one of the chief magazines covering Silicon Valley. Forbes magazine wrote of Draper that: “it looks for people who talk of changing the world, not building a business.”

Uniscape.com received its second round of financing in October, mainly from Asian investors. It, too, is seeking wider partnerships with global companies, and emphasizing in its business plan those that want to take advantage of Uniscape’s “dedicated project managers, Press and other joint marketing (activities), Uniscape.com access and Uniscape.com conference and seminar opportunities”.

Idiom Inc. continues to use world events and the trade press to generate interest among venture capitalists. Unique among start-ups we have “Web surfed,” it provides extensive background on its sources of financing, which includes Greylock, North Bridge Venture Partners and Sigma Partners.

Although the SDL IPO was the first European localization IPO, the European Union doesn’t want to leave it at that. According to the December 10 press release by Irish software globalization firm VistaTEC, Ireland has taken a step towards reaching its goal of becoming the e-commerce hub of Europe. VistaTEC was awarded a US$ 250,000 research grant by the European Union to develop a new multilingual, local e-commerce knowledge base for European corporations. To establish the ebusiness knowledge base VistaTEC has formed an independent company, GlobalTEC. The new company hopes to attract US$ 5 million in venture capital and 40 new employees in the next year. GlobalTec’s venture represents a significant milestone on the road to the government’s goal of making Ireland an international e-commerce center. Mervyn Dyke, the Managing Director of VistaTEC said, “We see tremendous opportunities for GlobalTEC in the international e-commerce sector, particularly with cross-border trading stemming from the Internet. Europe will exceed the US for online users sometime in 2003. This underpins the necessity for GlobalTEC’s product.”

VistaTEC has even opened a Silicon Valley office. I loved their European English press release, part of which stated, “Silicon Valley remains the ancestral home of e-commerce.” Given that e-commerce is five years old at best, it is interesting to see that adjective used.

Irish writer and analyst Patricia Seybold believes that more is on the way to challenge Silicon Valley. According to her, “…Ireland has a secret weapon that its government, wired execs, and not-so-wired execs need to learn how to use to their advantage. That’s a nature inbred customer care culture among the born and bred Irish. That may be the biggest advantage e-Ireland brings to the economy.”

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John Freivalds
JFA
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