Commtouch Software (CTCH $3.80) reported excellent on target Q3 results. Sales advanced 18% to $4.60 million. Earnings rose 50% to $.06 a share. The income figure excludes non cash stock option expense, and one time costs associated with the acquisition of Authentium's Command division. That deal brought the company an anti virus product line to complement its existing anti spam and web security products. The transaction was consolidated for one month of the quarter, adding $300,000 to revenues. Integration of the acquired unit is expected to be finished by the end of the year. We estimate that revenues will benefit by the same monthly rate in Q4, helping send the full year total to $18.0-$18.5 million. Operating costs may rise during the consolidation process, so incremental earnings are not expected to materialize until the start of 2011. For all of 2010 we continue to estimate income will improve by 33% to $.20 a share. Note - Our earnings figures reflect a 10% income tax rate. Commtouch currently does not pay taxes due to the availability of extensive tax loss carryforwards.
Cross selling opportunities promise to accelerate growth in 2011. Commtouch has relationships with more than 140 OEMs and Internet providers. Sales of the acquired anti virus line into that customer base could generate substantial leverage. The company also hopes to sell its legacy products into Command's base, which consists of 15 large users. The sales cycle tends to be fairly lengthy. And Commtouch recognizes revenue on a month to month basis, not as a one time shot. So the build up is likely to be a steady but gradual one. We estimate 2011 sales will reach $24 million to provide earnings of $.25 a share. A somewhat stronger performance is possible. Growth promises to remain at above average levels in subsequent years as new business pyramids higher. In 2-3 years income could reach $.40-$.50 a share on sales of $35-$40 million.
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