I think KEYN will beat estimates handily. Here's why:

Guidance is for revenues between 18.8M and 19.3M. EPS estimates are for 0.07 to 0.09. That revenue estimate is about 1.1M less than they did in Q3. Their old line internet site subscription revenue is not growing but appears to be stable so it should do about 9.4M, same as last quarter. Services should also be stable at around 2.3M like last quarter. Therefore the growth has to come from the mobile testing end and that is where they should do better. Mobile subscriptions have been rising steadily for the past two years and licenses have also climbed. To meet last quarters revenue level they would only have to continue that trend. The key will be mobile licenses. If they come through the quarter will be better than expected.

I think growth in mobile will continue and they will do about 20M in total revenue for the quarter, same as in Q3. Q4 is typically strong and they have a history of beating estimates. With 20M in revenue and gross margins at 75% (down 1% from Q3) they will do about 15M in gross profits. They have been cutting costs so operating costs should be steady. I expect operating income should be around 2M or about 0.13 per share, well above the estimates.

Again, the main thing will be mobile licenses. If they continue to be strong the quarter will be good and I expect the stock to pop. Market cap is a measly 143M, they have 56M in cash and a building worth perhaps 30M, perhaps more. On an EV to cash flow basis KEYN is selling for just 7 if one includes the worth of the building in the cash.

I think the shares are also dirt cheap compared to the price paid for Gomez, their principal competitor. Gomez was bought out for about 5 times sales. KEYN sell for 1.7 times sales even with the cash hoard and KEYN is certainly competitive with Gomez even if it is not growing as fast. KEYN has had operating cash flow as much as 20M in the past (2007). Even if they only do half that this year I think the shares are too cheap on any reasonable fundamental basis. One of these days the market will agree.

CD